Heavenly Bubbles Is a Small Soap Company Whose Main Product

question 124

Essay

Heavenly Bubbles is a small soap company whose main product is hand soap, which sells in a competitive market for $3 a bar. The output per hour of each workstation varies with the amount of labour used as the data in the table below indicates. Labour costs $12 and hour $$\begin{array} { | c | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Quantity of } \\\text { Labour }\end{array} & \begin{array} { c } \text { Output } \\\text { per } \\\text { Hour }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Product }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue } \\\text { I }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Revenue } \\\text { Product I }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue } \\\text { II }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Revenue } \\\text { Product II }\end{array} \\\hline 0 & 0 & / & / & / & / & / \\\hline 1 & 36 & & & & & \\\hline 2 & 60 & & & & & \\\hline 3 & 76 & & & & & \\\hline 4 & 86 & & & & & \\\hline 5 & 90 & & & & & \\\hline 6 & 92 & & & & & \\\hline\end{array}$$ a) Fill in the marginal product, total revenue I and marginal revenue I columns in the table above.
b) How many workers would the firm assign to each workstation?
c) Now assume that the wage rate increases to $16 an hour. How many workers should the firm now assign to each workstation?
d) Suppose the price of each bar increases to $4 each. Fill in the total revenue II column and marginal revenue product II in the table above to reflect this change.
e) Now how many workers would the firm assign to each workstation at a wage rate of $16?

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Definitions:

Completion Percentage

In project management and accounting, it refers to the ratio of work completed to the total scope of work, often used for progress billing and revenue recognition.

Equivalent Units

A concept in cost accounting used to convert partially completed goods into an equivalent number of fully completed units for inventory accounting purposes.

Conversion Costs

The combined costs of direct labor and overhead required to transform raw materials into finished goods.

First-In, First-Out

An inventory valuation method where the oldest inventory items are recorded as sold first.