Mary is an accountant and having an annual income of $400,000. She plans to open a bookstore and quitting her job. She has her own shop and the annual rent is $148,000. She expects the annual revenue of this bookstore could be $1,000,000. The monthly operating cost is estimated as $25,000. She would employ a shop assistant with the monthly salary of $10,000. She also needs to buy a set of computer, which costs $12,000 and the resale value in the second-hand market will be $8,000 after one year. (a) Calculate Mary's economic profit in the first year of operation. List the items and show your workings. (b) Would you recommend Mary to run the bookstore? Briefly explain.

Mary is an accountant and having an annual income of $400,000. She plans to open a bookstore and quitting her job. She has her own shop and the annual rent is $148,000. She expects the annual revenue of this bookstore could be $1,000,000. The monthly operating cost is estimated as $25,000. She would employ a shop assistant with the monthly salary of $10,000. She also needs to buy a set of computer, which costs $12,000 and the resale value in the second-hand market will be $8,000 after one year. (a) Calculate Mary's economic profit in the first year of operation. List the items and show your workings. (b) Would you recommend Mary to run the bookstore? Briefly explain.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 3E

See similar textbooks

Similar questions

4- As a prospective owner of a club known as the Red Rose, you are interested in determining the volume of salesdollars necessary for the coming year to reach the break-even point. You have decided to break down the salesfor the club into four categories, the first category being beer. Your estimate of the beer sales is that 30,000 drinkswill be served. The selling price for each unit will average $1.50; the cost is $.75. The second major category ismeals, which you expect to be 10,000 units with an average price of $10.00 and a cost of $5.00. The third majorcat- egory is desserts and wine, of which you also expect to sell 10,000 units, but with an average price of $2.50per unit sold and a cost of $1.00 per unit. The final category is lunches and inexpensive sandwiches, which youexpect to total 20,000 units at an average price of $6.25 with a food cost of $3.25. Your fixed cost (i.e., rent,utilities, and so on) is $1,800 per month plus $2,000 per month for entertainment.a) What is your…
Thelma has a long term lease on her cotton farm with an annual lease payment of $10,000. Prior to planting in the spring of 2020, she predicts that she will have $5000 left after paying all of her costs except for the annual lease payment. In this case, what should Thelma do?Select one:a. continue to operate because total revenue exceeds total costb. shut down and experience an accounting loss of $5000c. continue to operate even though she predicts an accounting loss of $5000d. exit the market and experience an accounting loss of $10,000
A share of stock currently costs $35. You can purchase either the shares, or options to buy the stock anytime this year at $38.50. These options cost $0.75 per. What price must the stock rise to this year to make the stock options equally profitable (meaning equal capital gain) to purchasing the stock? (Assume you exercise the options/sell the stock at this price.) What price must the stock rise to this year to make purchasing the stock options 6 times as profitable (meaning 6 times the capital gain) as purchasing the stock?
IPCSB.31 A firm is producing at the point of diminishing marginal product. It increases its use of labor. What happens to average cost? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a It must be decreasing. b It must be increasing. c It could be increasing, decreasing, or stay the same. d It must be staying the same.
"Boehm Compressors uses a lean production assembly line to make its compressors. In one assembly area, the demand is 100 parts per eight-hour day. It uses a container that holds eight parts. It typically takes about six hours to round-trip a container from one work center to the next and back again. It also desires to hold 15 percent safety stock of this part in the system" How many containers should Boehm Compressors be using? Calculate the maximum system inventory for this part If it reduced the number of containers by one, how would this impact the required round-trip time, all else being constant?"
Q5) A firm is planning to manufacture a new product. The sales department estimates that the quantity that can be sold depends on the selling price. As the selling price is increased, the quantity that can be sold decreases. Numerically they estimate: P = $35.00 - 0.02Q where P =selling price per unit Q = quantity sold per year On the other hand, the management estimates that the average cost of manufacturing and selling the product will decrease as the quantity sold increases. They estimate C = $4.00Q + $8000 where C = cost to produce and sell Q per year The firm's management wishes to produce and sell the product at the rate that will maximize profit, that is, where income minus cost will be a maximum. What quantity should the decision makers plan to produce and sell each year?
1. Direct laborrate: $15.00perhour Production material: $375 per 100 items Factory overhead: 125% of direct labor Packing costs: 75%ofdirectlabor Desiredproﬁt: 20%oftotalmanufacturing cost use the above information to answer how many units must be sold to achieve a proﬁt of $25,000? [Note that the units sold must account for total production costs (direct and overhead) plus desired proﬁt. 2. A small textile plant was constructed in 2004. The major equipment, costs, and factors are shown below. Estimate the cost to build a new plant in 2014 if the index for this type of equipment has increased at an average rate of 12% per year for the past 10 years. Show work and Select the closest answer. a) $4,618,000 b) $10,623,000 c) $14,342,000 d) $ 14,891,000
E4 ACME Corporation produces a variety of products for its diverse customer base, including the jet-powered pogo stick and jet-propelled tennis shoes, both of which are essential for catching roadrunners. Currently, they produce 40,000 engines per year that are used in the production of these two products. As the production manager for thisproduct line, you have determined that last year’s costs to produce the engines included: $99,600 in direct material expenses, $298,800 in direct labor expenses, $224,100 in variable overhead costs (i.e. power to operate the equipment), and $116,200 in fixed overhead costs (i.e. utilities to keep the factory operational). ACME plans to produce these engines only for the next 6 years. If they produce the engines in-house, they anticipate that direct material costs will increase at a rate of 5% each year. Further, they anticipate that labor costs will increase at a rate of 6% per year and variable overhead costs will increase at a rate of 3% per year.…
To automate one of its production processes, theMilwaukee Corporation bought three flexible manufacturing cells at a price of $400,000 each. Whenthey were delivered, Milwaukee paid freight chargesof $20,000 and handling fees of $15,000. Site preparation for these cells cost $45,000. Six foremen, eachearning $20 an hour, worked five 40-hour weeks toset up and test the manufacturing cells. Special wiring and other materials applicable to the new manufacturing cells cost $3,500. Determine the cost basis(amount to be capitalized) for these cells.
H1. Mimi's is developing a Fiery Habanero muffin, which will NOT compete with anything Mimi's currently offers. Unit contribution margin for the new Fiery Habanero muffin would be $3.38. Contribution margin for the company's Banana Nut muffin is $3.25 per unit. Mimi's expects to sell 45,000 units of the new muffin, if it is introduced. Compute weighted contribution margin for the new muffin. (Rounding: penny.)
a) Define operating leverageb) Firm A operating in a perfectly competitive market sells its product alpha at K10 per unit. Its variable costs are K5 per unit and it is currently selling 60 units. How much are its fixed cost if it’s degree of operating leverage is 1.5.c) What will be Firm A’s profit if its sales increased by 1% from 60 to 60.6?
A businessman is considering the purchase of a machine that is expected to be obsolete in 5years. The machine is worthP100,000. The prevailing rate of interest is 15%. His estimate of the annual gross incomes fromthe use of the machine isas follows:Year Income1 20,0002 25,0003 35,0004 30,0005 28,000Total = P138 999Should the businessman purchase the machine?