Susan Wong is a distributor of brass picture frames. For 2005, she plans to purchase frames for $30 each and sell them for $45 each. Susan's fixed costs are expected to be $240,000. Susan's only other costs will be variable costs of $60 per shipment for preparing the invoice and delivery documents, organizing the delivery, and following up for collecting accounts receivable. The $60 cost will be incurred each time Susan ships an order of picture frames, regardless of the number of frames in the order.
Required
1. a. Suppose Susan sells 40,000 picture frames in 1,000 shipments in 2005. Calculate Susan's 2005 operating income.
b. Suppose Susan sells 40,000 picture frames in 800 shipments in 2005. Calculate Susan's 2005 operating income.
2. Suppose Susan anticipates making 500 shipments in 2005. How many picture frames must Susan sell to break even in 2005?