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 $50 (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-only able to break even
C)$100,000 profit
D)$108,000 profit
E)$132,000 profit

Question

Quizplus · Accepted Answer

To calculate profit, we need to first calculate the total revenue and total cost.

Total revenue = Average price per frame x Number of frames sold
Total revenue = $120 x 2,000 = $240,000

Total cost = Fixed cost + Variable cost
Variable cost = Unit variable cost x Number of frames sold
Variable cost = $50 x 2,000 = $100,000
Total cost = $32,000 + $100,000 = $132,000

Profit = Total revenue - Total cost
Profit = $240,000 - $132,000 = $108,000

Therefore, the profit would be $108,000 if the picture frame store sold 2,000 picture frames. The answer is D.

Suppose You Are the Owner of a Picture Frame Store