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 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

First, let's calculate the contribution margin (CM) per unit:

CM = Price per unit - Unit variable cost
CM = $120 - $50
CM = $70

So each picture frame sold contributes $70 to covering FC and generating profit.

Next, let's calculate the break-even point (BEP) in units:

BEP in units = FC / CM
BEP in units = $32,000 / $70
BEP in units = 457.14

Round up to 458 picture frames to cover FC.

Now we can calculate the profit (or loss) based on the number of picture frames sold:

Profit = (Price per unit x Number of units sold) - (Unit variable cost x Number of units sold) - FC
Profit = ($120 x 2,000) - ($50 x 2,000) - $32,000
Profit = $240,000 - $100,000 - $32,000
Profit = $108,000

Therefore, the answer is D) $108,000 profit.

Suppose You Are the Owner of a Picture Frame Store