Quantitative Methods in Profit Analysis

1. Vandal Doughnuts is considering launching a new line of frozen doughnuts that customers can bake at home, or coffee shops can bake in-store and sell. The estimated start-up cost is $300,000 for the materials and machines required to launch the product line. Frozen doughnuts would sell for $2.80 per unit. The variable costs for materials and labour are estimated to be $1.90 per doughnut. (24 marks)

(a) Construct a Net Income (NI) function in terms of the number of doughnuts (x). (3 marks)
(b) What is the breakeven point in units? In dollars? (5 marks)
(c) Demand is estimated to be 20,000 frozen doughnuts per month (both customer and
wholesale). How long (in months) will it take Vandal Doughnuts to breakeven? (3 marks)
(d) What will the net income be when 80,000 frozen doughnuts are sold? (3 marks)
(e) Sketch a graph of their Net Income function and identify the BEP. (5 marks)
i. This should be done by hand on the graph at the end of this assignment.
ii. Make sure to label: the axes, the Net Income line, and the breakeven point (BEP)
(f) Set up an Excel model for this problem, and use Goal Seek to find the BEP in units. Include your 2 sets of Excel screenshots – see note below. (5 marks)

Note: For problem 1(f), please submit 2 screenshots of your Excel spreadsheet. You MUST include both a version with the numerical answers (Version 1 below) AND a version with the Excel formulas showing (Version 2 below – to get the formulas press “CTRL” and “~” and then take a screenshot [CTRL+` if you have a Mac]. You can press the same thing to return to the numerical content of the cell). Make sure to
label the Excel screenshots (e.g., “Question 1f ” and “Question 1f (formulas)”) so the graders know what question it is for AND make sure to write a sentence with the answer. An example of what this looks like is pasted below.

2. Halifax Wanderers Football Club contributes to medical coverage for its employees. Last year, the club paid a total of $81,350 in medical coverage premiums for 85 members of its staff. The club covers an annual premium of $420 for administrators but pays a higher premium for their players (who are at higher risk of injury given their sport), at $1,250. Given this knowledge, how many administrators and players were provided medical coverage by the Halifax Wanderers last year? (6 marks)
3. LF Bakery plans to increase the selling price of their almond croissant from $4.50 to $5.00. If variable costs per unit are 40% of the selling price, and the monthly fixed costs are estimated to be $8000, how many fewer units would they need to sell to break even at the new price (versus the old, lower price)? Round up units as required. (8 marks)
4. Greta deposited $1,500 in a savings account that earns interest at 5.25% compounded quarterly. What will the balance of her account be in 5 years? (4 marks)
5. You are looking to invest some of your savings in a secure financial instrument and are considering purchasing a Canada Savings Bond that has a face value of $2,000 and will mature in 6 years. If you want to achieve a rate of return of 4.75% compounded semi-annually, what is the maximum price you should be willing to pay for the bond today? (4 marks)
6. You start a new job as a Teaching Assistant in the Fall of 2024 and expect to be able to keep the position for Winter 2025 and Fall 2025. According to the contract, your hourly rate will increase by 2% and 2.5% in each of the next two semesters. If you currently are paid $19 per hour, what will your hourly rate be in the Fall of 2025? (4 marks)
   Note that questions are to be answered in sequence, should be well labelled, and should include responses in full sentences, where appropriate. For example, “Jackie will breakeven if their monthly production level is XXX units.” Refer back to the syllabus for details on how to submit your handwritten work, and Excel files together as a single PDF.