Chapter 1 - Introduction to Quantitative Analysis
Quantitative Analysis: scientific approach to managerial decision making. Emotions, guesswork and whim are not apart of this approach. Organizations: Institute for Operation Research and Management Science (INFORMS) Decision Sciences Institute, Academy of Management.
Define quantitative analysis. What are some of the organizations that support the use of the scientific approach?
F = 2400 s = 40 v = 25 BEP = f(s-v) = 2400 (40-25) =160 per week Total revenue = 40(160)=6400
Farris Billiard Supply sells all types of billiard equipment and is considering manufacturing its own brand of pool cues. Mysti Farris, the production manager, is currently investigating the production of a standard house pool cue that should be very popular. Upon analyzing the costs, Mysti determines that the materials and labor cost for each cue is $25 and the fixed cost that must be covered is $2,400 per week. With a selling price of $40 each, how many pool cues must be sold to break even? What would the total revenue be at this break-even point?
F = $350 S = 15 V = 8 (A) Total revenue = 20(15) = 300 Total variable cost = 20(8) = 160 (B) BEP = f / (s -v) = 350 / (15-8) = 50 units Total revenue = 50(15) = 750
Gina Fox has started her own company, Foxy Shirts, which manufactures imprinted shirts for special occasions. Since she has just begun this operation, she rents the equipment from a local printing shop when necessary. The cost of using the equipment is $350. The materials used in one shirt cost $8, and can sell them for $15 each. (A)If Gina sells 20 shirts, what will her total revenue be? What will her total variable cost be?(B) How many shirts must Gina sell to break even? What is the total revenue for this?
F = 11,000 s=250 v=60 BEP= f/(s-v) = 11,000/(250-60) = 57.9
Golden Age Retirement Planners specializes in providing financial advice for people planning for a comfortable retirement. The company offers seminars on the important topic of retirement planning. For a typical seminar, the room rental at a hotel is $1,000, and the cost of advertising and other incidentals is about $10,000 per seminar. The cost of the materials and special gifts for each attendee is $60 per person attending the seminar. The company charges $250 per person to attend the seminar, as this seems to be competitive with other companies in the same business. How many people must attend each seminar for Golden Age to break even?
F = 400 + 1000 = 1,400 s = 5 v = 3 BEP = 1,400 / (5-3) = 700
Katherine D'Ann is planning to finance her college education by selling programs at the football games for State University. There is a fixed cost of $400 for printing these programs, and the variable cost is $3. There is also a $1,000 fee that is paid to the university for the right to sell these programs. If Katherine was able to sell programs for $5 each, how many would she have to sell in order to break even?
BEP = f/(s-v) 500 (s-3) = 1400 S - 3 = 1400/500 S = 2.8 + 3 S = $5.80
Katherine D'Ann, from Problem 1-18, has become concerned that sales may fall, as the team is on a terrible losing streak and attendance has fallen off. In fact, Katherine believes that she will sell only 500 programs for the next game. If it was possible to raise the selling price of the program and still sell 500, what would the price have to be for Katherine to break even by selling 500?
F = 2400 s = ? V = 25 BEP = f/(s-v) 120 = 2400 / (s - 25) 120 (s-25) = 2400 S=45
Mysti Farris (see Problem 1-20) believes that there is a high probability that 120 pool cues can be sold if the selling price is appropriately set. What selling price would cause the break-even point to be 120?
F=2400 s=50 v=25 BEP = f/(s-v) = 2400(50-25) = 96 per weeks Total revenue = 50(96) = $4,800
Mysti Farris (see Problem 1-20) is considering raising the selling price of each cue to $50 instead of $40. If this is done while the costs remain the same, what would the new break-even point be? What would the total revenue be at this break-even point?
F = 150 s = 50 v = 20 BEP = f / (s-v) = 150/ (50-20) = 5 units
Ray Bond sells handcrafted yard decorations at county fairs. The variable cost to make these is $20 each, and he sells them for $50. The cost to rent a booth at the fair is $150. How many of these must Ray sell to break even?
F = 150 s = 50 v = 15 BEP = f / (s - v) = 150 / (50 - 15)
Ray Bond, from Problem 1-16, is trying to find a new supplier that will reduce his variable cost of production to $15 per unit. If he was able to succeed in reducing this cost, what would the break-even point be?
Break Even Point Analysis: number of units that must be sold to make zero profit. We must know selling price, fixed cost, and variable cost per unit.
What is the break even point analysis? What parameters are necessary to find it?
Quantitative analysis uses mathematical equations to analyze a problem. This will usually be one or more numbers to help managers and decision makers. Ex. Financial ratios, profit and loss statements, number of units to break even and rates of return. Qualitative analysis investigates factors in a decision making problem that cannot be quantified or stated in mathematical terms. Ex. State of economy, current or pending legislation, perceptions about a potential client.
What is the difference between quantitative and qualitative analysis?
