Question 2

Assume James was as a secondary teacher in the Philippines earning AUD 1,464.82 per month (Philippines Pesoequivalent). In August, after the typhoon Haiyan devastation, James decided to migrate to Melbourne, Australia to start a Mango Juice And Cake Bakery kiosk.

Before starting the business, James' uncle decided to offer him a bicycle shop. James calculated he could earn AUD 1,500 per month selling bicycles. But James wanted to succeed in his Mango Juice and Cake Bakery business so he decided to use the bicycle shop for the mango juice and cake bakery kiosk.

During the month of August, James summarised the costs of the business. The table below represents the August business summary.

James' August Business Summary

Item	Cost (AUD)
Cake Section
1 cake shelf	50,000
1 oven	10,000
1 van used for distributing cakes	50,000
Cake ingredients (Depending on demand. Assume this is the average expenditure per month)	20,000
Cake packs (Number of packs bought depend on demand. Assume this is the average expenditure per month)	40,000
Commercial cake mixer	10,000
2 Cake Preparation Workers: (wages depend on hours worked. Assume this is the average monthly wages per worker)	4,000
Mango Juice Section
1 commercial cooler room and freezer room for mango juice	48,000
Packaging Workers: for packaging of mango juice into bottles and into boxes (depending on demand but average per month)	40,000
2 Mango Juice Support Workers: (wages depend on hours worked. Assume this is the average monthly wages per worker)	15,000
Mango juice preservatives (Depending on demand. Assume this is the average expenditure on preservatives per month)	8,000
Assume 35,000 cakes are produced and sold per month. Assume 80,000 mango packs are produced and soldper month

Use the table to answer the questions below.

a. Calculate James' total cost and average total cost for each section (cake and mango juice section). Exclude implicit costs. b. Calculate James' variable cost and average variable cost for each section. Exclude implicit costs. c. Assume James sells each cake pack at AUD 5.00. Also, assume James sells each mango pack at AUD 2.00. Calculate James' accounting profit and economic profit for the month of August.