Peter is unemployed. To fill his time, he makes furniture such as bookcases. Friends and family all have one of his pieces. Peter is thinking of doing this for a living.

Peter would like to make $55,000 in cash profit in his first year. He can make several products but plans based on his most popular bookcase which stands 48 inches high, 36 inches wide and 10 inches deep with a glass front. This is a style known as a barrister bookcase because they are popular with lawyers. He will make them out of oak. Lumber will cost $100 per bookcase and glass $30. There will also be $10 in knobs, hinges and varnish in each bookcase.

Oak is hard to cut. Peter will need a better saw and will go through a lot of blades. A new cabinet saw will cost $4,280 each year.

a) 2 marks With respect to the number of book cases, what type of cost is the cabinet saw?

b) 2 marks Similar bookcases sell for $400 each. At this price, what would Peter s contribution margin be?

c) 4 marks How many bookcases must Peter make and sell to reach his target profit?

d) 4 marks In his workshop Peter can make a bookcase in one day. But varnishing and waiting for the varnish to dry takes 3 days. During that time, Peter can t run his saw since the sawdust will ruin the varnish. He thinks it would be better to contract out the varnishing. That way, he can just spend his time making the bookcases. A friend owns a paint sprayer which can also be filled with varnish. The friend offers to varnish each bookcase at his home for a fee of $20 plus Peter must provide the varnish. This means Peter can continue running his saw in his workshop. Now how many book cases must Peter make to reach his target?