Question

Three entrepreneurs plan to open a copy shop. It costs $5000 per year to rent a copier. It costs $0.03 per copy to operate the copier. Other fixed costs of running the store will amount to $400 per month. The planned price per copy is $0.10. The shop will be open 365 days per year. Each copier can make up to 100,000 copies per year.

The graph for cost and revenue is shown below. We can see that at a point between 700 and 800 the revenue overtakes the cost. Thus the daily demand needed lies between 700 and 800. We will identify this in part c.

I try to make the same graph from the three copier data. but somehow my graph doesn't turn out to be the same.. my cost line are weird...

Chart Title 500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 500 600 700 800 900 1000 1100 1200 Cost -Revenue

Answer 1

I have plotted the graph as follows: Please check if you have used the right formulae for calculating the cost and revenue.

The volume that we have taken here is the daily production.

Hence, the variable cost and total sales will be multiplied by 365.

For 3 copier machines,

Cost = Total Fixed Cost + Total Variable Cost

Total Fixed Cost = 5000 * 3 + 400 * 12

Total Variable Cost = 0.03 * Volume * 365 days

Cost = 5000 * 3 + 400 * 12 + 0.03 * Volume * 365

Total Revenue = 0.1 * Volume * 365

Here, for 3 copiers, we can see that the breakeven volume is between 700 and 800 units.

B D E F G H - Cost 500 600 Chart Title 50000 45000 40000 Revenue 25275 18250 26370 21900 27465 25550 28560 29200 29655 32850 30750 36500 31845 40150 32940 43800 35000 А 32 3-copier 33 Volume 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 700 800 900 1000 1100 1200 30000 25000 20000 15000 10000 5000 0 500 600 700 800 900 1000 1100 1200 Cost -Revenue 10

B с E F G H - Cost Revenue Chart Title 50000 45000 А 32 3-copier 33 Volume 34 500 35 600 36 700 37 800 38 900 39 1000 40 1100 41 1200 42 43 44 45 46 47 48 49 50 =5000*3+400*12+0.03*A34*365 =5000*3+400*12+0.03*A35*365 =5000*3+400*12+0.03*A36*365 5000*3+400*12+0.03*A37*365 =5000*3+400*12+0.03*A38*365 =5000*3+400*12+0.03*A39*365 =5000*3+400*12+0.03*A40*365 =5000*3+400*12+0.03*A41*365 =A34*0.1*365 =A35*0.1*365 =A36*0.1*365 =A37*0.1*365 =A38*0.1*365 =A39*0.1*365 =A40*0.1*365 =A41*0.1*365 40000 35000 30000 25000 20000 15000 10000 5000 0 500 600 700 800 900 1000 1100 1200 Cost Revenue

For the graph that you have plotted, the revenue line looks good. Kindly check the data for the cost that you have taken for plotting the line. I think that is where it has gone wrong as it has not taken the cost values correctly.

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