Question

I need full answer with full details and explanation :

The ET students at SWOSU are launching a business manufacturing homework-completing robots. There are roughly $253.22 in material costs for each robot (including waste), and the hope is to sell them at the bargain price of $399.99 each. Since they're using the facilities in the ET department, they aren't planning to purchase equipment until after they graduate (2 years from now). They expect to sell 23 robots each quarter until they graduate. Then, they'll invest $23,456.78 in equipment and facilities to grow the business on their own. Once they're running this full-time as a business they expect to be able to produce and sell at higher volumes, and the ongoing expenses (in addition to the material costs) for this phase of their business will be $1,234.56 per month.

a) How much will they earn in profits over the next eight quarter while they are still students?

b) Draw the cash flow diagram for the next eight quarters while they are still students?

c) Staring with the period after they graduate, how many robots would they need to sell each quarter to break even within the first year?

d) Staring with the period after they graduate, how many robots would they need to sell each quarter to break even within the first two years?

e) Why are these numbers different?

f) Draw the cash flow diagram for part d

Answer 1

A) Profits during the eight quarters as students

Sale price of Robot = $399.99

Cost of each Robot = $253.22

Profit on each Robot = $146.77

Profit for 8 quarters on a sale of 23 robots each quarter = $146.77 * 23 * 8 => $27005.68

B) Cash Flow Diagram

As there is no negative initial cash outflow, we could simply obtain through MS-Excel as follows:

Quarterly Cash Inflow = ($399.99-$253.22) * 23 = $3,375.71

C) Breakeven within 1 year

Initial Outflow after graduation = $23,456.78

Monthly expenses = $1,234.56 => Quarterly Expenses = $3,703.68

Total variable expenses for one year = $1,234.56 * 12 = $14,814.72

Total outflow for the year = $23,456.78 + $14,814.72 = $38,271.5

No of Robots to be sold in the first year to break even = $38,271.5/146.77 = 261 robots

No of robots to be sold per quarter = 261/4 = 66 robots(approximation)

D) Breakeven within 2 years

Initial Outflow after graduation = $23,456.78

Monthly expenses = $1,234.56 => Quarterly Expenses = $3,703.68

Total variable expenses for two years = $1234.56 * 24 = $29,629.44

Total outflow for the first two years = $23,456.78 + $29,629.44 = $53,086.22

No of Robots to be sold in the first two years to break even = $53,086.22/146.77 = 362 robots

No of robots to be sold per quarter = 362/8 = 46 robots(approximation)

E) the numbers are different due to the reason that variable costs and initial outlay are to be covered over different number of quarters. To achieve Break-even within the first year, we have to sell more robots to cover the initial outlay.

F) Cash Flow Diagram for cash flow based on d

Quarter 0 Cash Flow(initial outlow) = -$23,456.78

Quarterly Cash Flow = (46 * $146.77) - $3,703.68 = $3047.74