Suppose You Are the Owner of a Picture Frame Store

question 45

Multiple Choice

Suppose you are the owner of a picture frame store and you wish to calculate how many pictures you must sell to cover your fixed and variable costs at a given price.Let's assume that the demand for your pictures is strong,so the average price customers are willing to pay for each picture frame is $120.Also,suppose your current fixed costs (FC) total $32,000 (real estate taxes,interest on a bank loan,etc. ) and your current unit variable cost (UVC) for a picture frame is $40 (labor,glass,frame,and matting) .Now,suppose you decide to rent a machine for $18,000 that will speed up production so that you can guarantee that you could sell 2,000 picture frames.The new machine allows you to: (1) key in the dimensions needed to cut the frame,glass,and matting for any picture frame size; (2) reduce losses in miscut glass and mats;and (3) automate the production process to dramatically increase the output of framed pictures.This new technology will increases total fixed costs from $32,000 to $50,000.However,it will also lower variable costs from $40 to $20 per unit.Now,with the new machine,what would your profit (or loss) be if you sold 2,000 picture frames?

• A)a loss of $32,000
• B)$0-only able to break-even
• C)$100,000 profit
• D)$108,000 profit
• E)$132,000 profit

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Definitions:

Feeling Isolated

The emotional state of feeling separated from others, which can result in loneliness, depression, and a sense of disconnection from social support.

Discouraged

Refers to feeling less motivated or confident about doing something, often as a result of difficulty or failure.

Depression

A mental disorder manifested by an unwavering sense of dejection or loss of interest in customary activities, greatly obstructing day-to-day performance.

Depressive Episodes

Periods characterized by low mood, lack of energy, and a disinterest in life, often found in the context of major depressive disorder.