Question 1
Patricia Zell, a dollmaker from Olney, , is interested in the mass marketing and
production of a ceramic doll of her own design called Tiny Trisha. The initial investment
required for plant and equipment is estimated at $25,000. Labor and material costs are
approximately $10 per doll. If the dolls can be sold for $50 each, what volume of
demand is necessary for the Tiny Trisha doll to break even?
Question 2
Although it will fulfill her lifelong dream, Patricia is not confident that demand for
her Tiny Trisha doll will exceed the breakeven point computed in Problem 6-5. If she
chooses a less appealing site and does more of the work by hand, her initial
investment cost can be reduced to $5000, but her per-unit cost of manufacture will
rise to $15 per doll.
What is the breakeven point for this new process?
Compare this process to the process proposed in the previous problem. For what
volume of demand should Patricia choose this process?
