Humber College - BECN 150 Assignment 2 1)A company produces gold picture frames

Humber College - BECN 150

Assignment 2

1)A company produces gold picture frames. The cost per picture frame is:

Materials                                                         $9

Packaging                                                        $1

Decorations on the frame                                $5

Shipping and handling                                    $1.5

Each worker earns $30,000 annually in salary and benefits. The number of workers changes based on the level of production. This means this is a variable cost.

The artist who creates the designs on the picture frames is paid $25,000 annually. Senior management are paid a total of $200,000 annually. Other annual costs are:

Taxes and Insurance                                                        $17,000

Utilities                                                                            $50,000

Rent                                                                               $300,000

Miscellaneous Overhead Expenses                                  $24,000

The following production is possible:

Using all this information complete the following table and answer the questions. It would be easier if you set this up in an Excel spreadsheet. When you are done, you must submit it as a Word document with your answers. You will use this table to

Your first step is to identify which are fixed costs and which are variable costs. If you will have to keep paying the cost whether you produce 0 units of the product or 10,000 units, then it is a fixed cost. In the short run you have to keep paying it. In the long run you may be able to change these fixed costs. A variable cost changes based on how much of the product you produce. But the variable costs may not change all at the same time.

2. What is the lowest price you would be willing to start producing this new product? Be precise. Don’t round up to the nearest dollar. 

3. If you were already committed to the fixed costs, how low could the price per picture frame fall before you would consider shutting down production? Remember, in the SHORT RUN, you have to keep paying your fixed costs whether you produce any picture frames or not. If you can cover your variable costs, then anything over that will reduce your fixed costs. You may be losing money in the short run but you are losing less money.

4. If the price per picture frame was fixed at $35, what would you do? Remember, in the short run you can’t alter fixed costs, you can just decide where to set the level of production. You need to calculate total revenue and profit or loss for each level as you are given the average revenue. Remember to state both what level of production you would choose and what dollar profit you would make.  

5. If the price per picture frame was fixed at $26.50, what would you do in the SHORT RUN? Again, remember that you have to keep paying your fixed costs in the short run. Fill in the table completely and state what level of production you would use. State what is your profit at this level? 

6. If the price per picture frame were fixed at $18.60, what would you do in the SHORT RUN? Fill in the chart and state what level of production you would use.   

7. If marketing data showed you could sell the following number of picture frame at the prices indicated, how many picture frames would you produce and what would be your profit? Fill in the chart.