Sackville Plastics (SP) is considering adding a new product to its product line. The
Oyster is a hard-shell case for tablet computers, designed for those using tablets in more demanding
environments. Producing this product will require the acquisition of a set of molds that can be used
with injection molding equipment that SP already has. The molds will cost $90,000. Materials and
labour are estimated to average $5.40 per unit, regardless of size. The Oyster will sell to distributors
for an estimated $9.00.
a) [4 point] Construct revenue, cost, and profit functions for the Oyster.
b) [4 point] How many units must SP sell to breakeven? What is the breakeven sales?
c) [9 points] Construct a graph of the revenue, cost and profit functions and identify the breakeven
point. Label all lines and axes.
d) [3 point] Suppose that they estimate that demand will be 10,000 units per year. How long will it
take for them to breakeven?
e) [4 point] How many units must they sell to achieve a profit of 40% of total costs?
f) [4 point] How many units must they sell to achieve a profit of 20% of revenues?
g) [5 point] Office Warehouse, a national chain of office supply stores, wants to be the exclusive
distributor of the Oyster and has guaranteed to purchase 60,000 units over the next two years.
What is the lowest price that Sackville Plastics can sell the Oyster for and still breakeven in 2
years?
h) [3 point] Using Excel, build the basic breakeven model for part a) above. Once the spreadsheet
is built, press Ctrl and ` keys at the same time and your spreadsheet should flip to formula view.
Take a screen shot of your spreadsheet
MGSC 1205
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i) [3 point] Now use Goal Seek to find the breakeven quantity. To show your work, open Goal
Seek again, fill in the cells and then take another screenshot. The screenshot should show both
the values in column B as well as the Goal Seek box.
2. [24 Points] Sackville Plastics is considering the acquisition of a new packaging machine that will
apply a plastic film over a product and attach it to a cardboard backing. Hamamatsu Techwrap
manufactures 3 models of packaging equipment that would meet Sackville’s requirements. They are
intended for low, medium, and high-volume applications. The costs of the three machines are
$22,000, $31,000, and $47,000, respectively. Sackville estimates that the packaging cost per unit,
including materials, labour and equipment maintenance will be $0.22, $0.19, and $0.15,
respectively.
a. [4 point] Construct the three cost functions, depending upon which machine is selected.
b. [4 point] Under what conditions is the low volume machine preferable?
c. [4 point] When is the high-volume machine preferred?
d. [12 point] Graph the three cost functions and identify the volumes at which each machine is the
least costly