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QSO 520 Module One Homework Questions
1. (P1-21) A manufacturer is evaluating options regarding his production equipment. He is trying to decide whether he
should refurbish his old equipment for $70,000, make major modifications to the production line for $135,000, or
purchase new equipment for $230,000. The product sells for $10, but the variable costs to make the product are
expected to vary widely, depending on the decision that is to be made regarding the equipment. If the manufacturer
refurbishes, the variable costs will be $7.20 per unit. If he modifies or purchases new equipment, the variable costs are
expected to be $5.25 and $4.75, respectively.
(a) Which alternative should the manufacturer choose if it the demand is expected to be between 30,000 and 40,000
units?
(b) What will be the manufacturer’s profit if the demand is 38,000 units?
2. (P1-22) St. Joseph’s School has 1,200 students, each of whom currently pays $8,000 per year to attend. In addition to
revenues from tuition, the school receives an appropriation from the church to sustain its activity. The budget for the
upcoming year is $15 million, and the church appropriation will be $4.8 million. By how much will the school have to
raise tuition per student to keep from having a shortfall in the upcoming year?
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