Financial Algebra© 2011 Cengage Learning. All Rights Reserved. Slide 11

2-4

FIXED AND VARIABLE EXPENSES

Understand the difference between fixed and variable expenses.

Create an expense equation based on fixed and variable expenses.

OBJECTIVES

Financial Algebra© 2011 Cengage Learning. All Rights Reserved. Slide 22

variable expenses fixed expenses expense equation

E = V + F

revenue

revenue equationR = pq

profit loss breakeven point

Key Terms

Financial Algebra© 2011 Cengage Learning. All Rights Reserved. Slide 33

Example 1Example 1

The art students have researched all of their potential expenses. The fixed expenses are $17,600. The labor and materials required for each pair of painted jeans produced cost $7.53. Represent the total expenses as a function of the quantity produced, q.

Financial Algebra© 2011 Cengage Learning. All Rights Reserved. Slide 44

A widget manufacturer’s expense function is E = 6.00q + 11,000. What are the variable costs to produce one widget?

CHECK YOUR UNDERSTANDING

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EXAMPLE 2EXAMPLE 2

Kivetsky Ski Supply manufactures hand warmers for skiers. The expense function is E = 1.18q + 12,000. Find the average cost of producing one pair of hand warmers if 50,000 hand warmers are produced.

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EXAMPLE 3EXAMPLE 3

Willie’s Widgets has created a demand function for its widgets, where q is the quantity demanded and p is the price of one widget

q = –112p + 4,500 Its expense function is E = 3.00q + 18,000. Express the

expense function as a function in terms of p.

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EXAMPLE 4EXAMPLE 4

Wally’s Widget World created a monthly expense equation, E = 1.10q + 4,200. Wally’s Widget World plans to sell its widgets to retailers at a wholesale price of $2.50 each. How many widgets must be sold to reach the breakeven point?

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If the company sells 2,900 widgets, is Wally’s Widget World operating above or below the breakeven point? What is the difference between revenue and expense?

CHECK YOUR UNDERSTANDING

Financial Algebra© 2011 Cengage Learning. All Rights Reserved. Slide 99

Algebraically find the breakeven point for the expense function, E = 5.00q + 60,000, and the revenue function, R = 7.00q.

CHECK YOUR UNDERSTANDING