Suppose You Are the Owner of a Picture Frame Store

question 171

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 $120.20.20.20.20.20.20.20.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
• C) $32,000 profit
• D) $112,000 profit
• E) $128,000 profit

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Definitions:

Direct Materials

The raw materials that are used directly in the manufacturing of a product and can be easily traced to it.

Journal Entry

A record in the accounting journal that represents a business transaction, including information such as the date, accounts affected, and amounts debited and credited.

Process Costing System

An accounting system used to evaluate the cost associated with a production process that continuously produces homogeneous products.

Raw Materials Inventory

The total cost of all parts and materials held in stock by a company that are intended for use in production.