Suppose You Are the Owner of a Picture Frame Store

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