Break Even & Solver:

Problem #1:

Before After
Cost of Labor per hour $6 $1
Cost of Program $0 $3,000,000

Solve for Break Even # of hours: X = Break Even Hours

6X + 0 = 1X + 3,000,000

5X = 3,000,000

X = 3,000,000/5 = 600,000 hours

Problem #2:

Before Option A Option B

Service Call Expenses X 0.65X 0.50X
Cost of Upgrade $0 $200,000 $300,000

If we are looking at the two options separately (i.e. we are only looking at each option as though
there are not other options) then our answers would be as follows:
Part A: Look at break even for Option A:

X + 0 = 0.65X + 200,000

0.35X =–200,000

200,000/0.35 = X = $571,428.57

Part B: Now we can solve for the Break Even point for Option B:

X + 0 = 0.50X + 300,000

0.50X = 300,000

300,000/0.50 = X = $600,000

Therefore, if our Service Expenses are less than $571,428.57, and we are only looking at Option
A, we would do nothing. If our Service Expenses are less than $600,000, and we are only
looking at Option B, we would do nothing.

If we are in the situation that we have both Options A & B available to us at the same time and
we can only choose one of the options (we call this Mutually Exclusive), then we take a slightly
different approach to the Break Even points. Our first step is to calculate the lower Break Even
point by looking at the lower cost option and do the Break Even point between that option and
the option of doing nothing, as we did in Part A above. The second step is to then calculate the
upper Break Even point between Options A and B. The calculation would be as follows:
 Part C: Now we can solve for the Break Even point between Options A & B:

0.65X + 200,000 = 0.50X + 300,000

0.15X = 100,000

1300,000/0.15 = X = $666,667

Therefore, if our Service Expenses are less than $571,428.57, we would do nothing. If they are
between $571,428.57 and $666,667, then we would choose Option A, and if they are over
$666,667, then we would choose Option B.

Problem #3:

Before After
Revenue per hour $20 $20 x 1.10
Cost per hour $12 $12
Cost of Program $0 $100,000

Solve for Break Even # of hours: X = Break Even Hours

(20-12)X – 0 = [(20 * 1.10)-12]X – 100,000

8X = [22 – 12]X – 100,000

(10 – 8)X = 100,000

X = 100,000/2 = 50,000 hours

You would do this depending on how long it takes to get to 50,000 hours.
Problem #4:

Before After
Profit per unit $14 $14 x 1.20 = $16.80
# Units X 1.10X
Cost of Program $0 $2,000,000

Solve for Break Even # of units: X = Break Even units

14X – 0 = (16.80 * 1.10) X – 2,000,000

14X = 18.48X – 2,000,000

(18.48 – 14)X = 2,000,000

X = 2,000,000/4.48 = 446,428.57 units

Therefore, you need to look at when you will reach the break even point to decide if you should
do the project.

Problem #5: In this problem, our unknown is the total number of motorists that travel this road.

No Advertisement Option A Option B

Profit per unit $30 $30 $30
# Units 0 0.015X 0.02X
# of motorists/year 0 X X
Cost of Program $0 $60,000 $90,000

Part A: Look at Option A and solve for Minimum Break Even # of motorists:

0 = 30(0.015X) – 60,000

0.45X = 60,000

60,000/0.45 = X = 133,333.33 Motorists/year

Part B: Now we can solve for the Break Even point for Options A & B:

30(0.015X) – 60,000 = 30(0.02X) – 90,000

0.45X – 60,000 = 0.60X – 90,000

0.15X = 30,000

30,000/0.15 = X = 200,000 motorists/year

Therefore, if the number of motorists who would see the sign is less than 133,333, we would do
nothing. If they are between 133,333 and 200,000, then we would choose Option A, and if they
are over 200,000, then we would choose Option B.