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/biz/ - Business & Finance

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1001913 No.1001913 [Reply] [Original]

PLEASE HELP

I can't figure this out

Suppose you are the owner of a picture frame store and you wish to calculate how many pictures you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your pictures is strong, so the average price customers are willing to pay for each picture frame is $125. Also, suppose your current fixed costs (FC) total $50,000 (real estate taxes, interest on a bank loan, etc.) and your current unit variable cost (UVC) for a picture frame is $50 (labor, glass, frame, and matting). Now, suppose you decide to rent a machine for $25,000 that will speed up production so that you can guarantee that you could sell 2,000 picture frames. The new machine allows you to: (1) key in the dimensions needed to cut the frame, glass, and matting for any picture frame size; (2) reduce losses in miscut glass and mats; and (3) automate the production process to dramatically increase the output of framed pictures. This new technology will increases fixed costs from $50,000 to $75,000. HSæ| äãAowever, it will also lower variable costs from $50 to $25 per unit. Now, with the new machine, what will your profit (or loss) be if you sold 2,000 picture frames?

>> No.1001929
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1001929

>>1001913

First anon, you want to define your variables:

Fixed Cost = $75,000
Variable Cost = $25
Selling Price = $125
Quantity = 2,000

Now, do the very simple math to get your revenue:

Revenue = $125 * 2,000 = $250,000

Then we will find your total cost for production:

We know that Total Cost = Fixed Cost + Variable Cost

so:

Total Cost = $75,000 + 2,000($25)
Total Cost = $125,000

Finally, we will subtract or cost from revenue to find out what our profit will be on this lucrative venture:

$250,000 - $125,000 = $125,000

Not bad!

>> No.1001930

>>1001913
Thanks! My first semester in business. Had no idea how to tackle this in my marketing class.

>> No.1001937

>>1001930
This is about as simple as it gets, hope you learn to pay attention in class.