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# variable costs and fixed costs

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Analyzes how companies can employ the marginal revenue concept and the marginal cost concept to maximize profits using 350 words.

To use the concept, variable costs and fixed costs will have to be incorporated into and used with the marginal cost concept. How might competition lessen the possibility of use the marginal concepts to maximize profits?

DEFINITIONS OF MC, MR

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https://brainmass.com/economics/perfect-competition/250380

#### Solution Preview

The marginal cost (MC) is the cost of an additional unit of production. So, the marginal cost of the 10th stereo is the cost of producing that 10th stereo, or the total cost of producing all 10 stereos, minus the cost of producing 9 stereos. Another way of putting it is that the MC is the total variable costs (TVC) of producing 10 stereos minus the total variable cost of producing 9 stereos. This is because neither the MC nor the TVC include Fixed Costs. Fixed costs are not unit dependent, and MC and TVC are.

Marginal revenue is the additional revenue that you would gain from ...

#### Solution Summary

An overview of variable costs and fixed costs with discussion of its relevance in monopoly and competition.

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## Lancer Audio: Compute fixed, variable costs and profit of DVD player sales

4-2. Account analysis: Lancer Audio produces a high-end DVD player that sells for \$1250. Total for July operating expenses were as follows:

Units produced and sold 140

Component cost 67000
Supplies 1680
Assembly labor 23500
Rent 2200
Supervisor salary 5500
Electricity 250
Telephone 180
Gas 200
Shipping 1540
Advertising 2500
Administration costs 14500
Total 119050

Required:

A. Use account analysis to determine fixed cost per month and variable cost per DVD player.
B. Project total cost for August assuming production and sales of 160 units.
C. What is the contribution margin per DVD?
D. Estimate total profit assuming production and sales of 160 units.
E. Lancer audio is considered an order for 100 DVD players, to be produced in the next 10 months, from a customer in Canada. The selling price will be \$900 per unit (under the normal price). However, the Lancer Audio name will not be attached to the product. What will be the impact on company profit associated with this order?

4-3. High low, break even. Lancer audio produces a high-end DVD player that sells for 1250. Total operating expenses for the past 12 months are as follows:

Units produced and sold cost
August 125 112,670
September 145 121,990
October 150 129,500
November 160 131,500
December 165 139,700
January 140 117,400
February 145 125,600
March 135 115,400
April 130 116,140
May 135 119,220
June 145 121,700
July 140 119,050

Required:

A. Use the high-low method to estimate fixed and variable cost.
B. Based on these estimates, calculate the break-even level of sales in units.
C. Calculate the margin of safety for the coming august assuming estimated sales of 160 units.
D. Estimate total profit assuming production and sales of 160 units.
E. Comment on the limitations of high-low method in estimating costs for Lancer audio.

4.6 Account analysis, High-low, contribution margin. Information on occupancy and costs at the New Hotel for April, May, and June are indicated below:

April May June
Occupancy 1500 1650 1800
Day Manager salary 4200 4200 4200
Night manager salary 3700 3700 3700
Cleaning Staff 15300 15600 15900
Depreciation 12000 12000 12000
Food and beverages 4600 5300 5800
Total 39800 40800 41600

Required:
A. Calculate the fixed costs per month and the variable cost per occupied room using account analysis for April.
B. Calculate the fixed costs per month and the variable cost per occupied room using the high-low method.

C. Average room rates are \$110 per night. What is the contribution margin per occupied room? In answering this question

Use your variable cost estimate from part b.

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