Suppose You Are the Owner of a Picture Frame Store

question 78

Multiple Choice

Suppose you are the owner of a picture frame store and you wish to calculate how many frames you must sell to cover your fixed and variable costs at a given price. Let's assume that the demand for your frames is strong, so the average price customers are willing to pay for each picture frame is $120. Also, suppose your fixed costs (FC) total $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture frame is $40 (labor, glass, frame, and matting) . If your picture frame store sold 2,000 picture frames, what would your profit (or loss) be?

• A)a loss of $32,000
• B)$0-just able to break even
• C)$32,000 profit
• D)$112,000 profit
• E)$128,000 profit

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Definitions:

Monthly Fixed Costs

Regular, unchanging expenses incurred by a business each month regardless of the level of production or sales, such as rent, salaries, and insurance premiums.

Allocated

The process of distributing resources or costs among various departments, products, or activities based on specific criteria.

Raw Materials

Raw materials are basic, unprocessed inputs used in the manufacturing process to produce finished goods.

Allocated Rent

The portion of rental expenses assigned to different departments or business units within an organization, often based on space usage or other relevant criteria.