Suppose you are the owner of a picture frame store.Let's assume that 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).Figure 13-10 above shows that by selling 800 picture frames,you will
A)break even.
B)earn a profit.
C)incur a loss.
D)have no fixed costs.
E)have no variable costs.

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to use the formula:
Break-even point (in units) = Fixed costs ÷ (Unit price - Unit variable costs)
Plugging in the values given in the problem, we get:
Break-even point (in units) = $32,000 ÷ ($120 - $40) = 400
This means that the store needs to sell 400 frames just to break even i.e. cover its fixed and variable costs. However, if the store sells 800 frames (double the break-even point), it will earn a profit since the revenue generated from selling 800 frames will be:
Revenue = 800 × $120 = $96,000
And, the total cost incurred for selling 800 frames will be:
Total cost = Fixed costs + Variable costs
Total cost = $32,000 + (800 × $40) = $64,000
Profit = Revenue - Total cost = $96,000 - $64,000 = $32,000
This shows that the store will earn a profit of $32,000 by selling 800 frames, which is more than the fixed costs. Therefore, the best choice is B - earn a profit.

Suppose You Are the Owner of a Picture Frame Store