A company produces chairs. The cost per chair is: Materials $20.00 Hardware $0.50 Decorations $6.00 Shipping and handling $10.00 Each worker earns $32,000 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 chairs is paid $12,000 annually. Senior management are paid a total of $400,000 annually. Other annual costs are: Taxes and Insurance $20,000 Utilities $45,000 Rent $126,000 Miscellaneous Overhead Expenses $14,000 The following production is possible: No. Of 0 2 3 4 5 6 7 Workers No. Of 0 10,000 |22,000 30,000 42,000 75,000 85,000 75,000 Chairs that can be made 1. 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 answer questions 2 and 3. (4 marks) 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. Remember there is a sample assignment Module 9. This would give you some practice before completing this assignment that will be marked.\f4. If the price per chair was fixed at $90, 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 mark) production you would choose and what dollar profit you would make. (1 # of PXQ price FC + VC Profit or Workers Loss TR AR Q TC TP 0 W 4 5 6 7 5. If the price per chair was fixed at $39.00, 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? (1 mark) FC + VC Profit or # of PXQ price Loss Workers TR AR Q TC TP 0 4 76. If marketing data showed you could sell the following number of chairs at the prices indicated, how many chairs would you produce and what would be your profit? Fill in the chart. (1 mark) # of 10,000 22,000 30,000 42,000 75,000 85,000 |75,000 Chairs Price $200 $150 $125 $100 $75 $50 $45 (AR) # of TR AR Q TC Profit or Workers Loss (TP) 0 YOUAWN- 7. Why does quantity decrease when the 7th worker is added? What is the term for this effect? (1 mark)
