# Unit 3 Ip Econ 220

Good Essays
697 Words
Grammar
Plagiarism
Writing
Score
Unit 3 Ip Econ 220
American Intercontinental University
Unit 3 Individual Project
ECON 220 – Microeconomics
May 19, 2013

Abstract
This paper will provide an analysis of 2 production scenarios. We will calculate costs associated with running a production facility. Furthermore, the analysis will be used to provide a basic understanding of how changes in staffing and productivity impact profit and loss.

Management’s Production Decision
Introduction
This report will provide insight on what your management team should do concerning production costs. We will examine 2 different scenarios and provide our decision as to which makes most sense. In the first scenario, the total fixed cost of the production is 1,000,000. In the second scenario, the total fixed cost of production is 3,000,000.
Scenario 1 – total fixed cost 1,000,000
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
50,000(workers) * \$80(daily wage) = 4,000,000 + 400,000(other variable cost)
Total Variable Cost = 4,400,000
Average Variable Cost = Total Variable Cost / Units of Output per Day
4,400,000(total variable cost)/200,000(units of output per day)
Average Variable Cost = 22
Average Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per Day
4,400,000(total variable) + 1,000,000(total fixed)/200,000(Units of output)
Average Total Cost = 27
Worker Productivity = Units of Output per Day / Number of Workers
200,000(units of output)/50,000(workers)
Worker Productivity = 4
Profit or loss? = loss of \$400,000

Scenario 2 – total fixed cost 3,000,000
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
50,000(workers) * \$80(daily wage) = 4,000,000 + 400,000(other variable cost)
Total Variable Cost = 4,400,000
Average Variable Cost = Total Variable Cost / Units of Output per Day
4,400,000(total variable cost)/200,000(units of output per day)
Average Variable Cost = 22
Average Total Cost =

References: Krugman, P., &amp; Wells, R. (2009). Microeconomics. (2nd ed.). Worth Publishers. Retrieved from http://wow.coursesmart.com/9781464129520

## You May Also Find These Documents Helpful

• Good Essays

Direct Labor cost = Production hours required (skilled) * wages (25.27) + Production hours required (unskilled) * wages (9.9)…

• 1207 Words
• 5 Pages
Good Essays
• Satisfactory Essays

Average labor cost per unit = (22*.02) + (23*.34) + (24*.05) + (25*.39) + (28*.20) = \$24.81…

• 256 Words
• 2 Pages
Satisfactory Essays
• Good Essays

Variable costs are those costs that increase as the output the restaurant increases. As example, assume for the Teen Burger Direct Materials cost \$1.50 per burger. A day with one thousand burgers sold would cost of \$1500 dollars. In comparison, a day with two thousand burgers sold would cost \$3000 dollars. While the cost per Teen Burger remains constant the total cost per day varies with the output each given day. Electricity costs would increase in the same fashion as each time a burger is cooked the usage of electricity for heating would increase. Assuming four cooks can produce 1000 Teen Burgers, five can produce 2000, and six can produce 3000 in a day wages would also increase in the same fashion. If production only moves from 2600 to 2700 burgers the Direct Labour costs will remain fixed, this type behavior, as visible in the chart to the right, is called a step variable (Bragg, 2014). The dotted line is the trend, if we graphed the number of teen burgers to the Cost of Direct materials it would take the same straight line shape. The number of attendees at the register tracks approximate the same number of employees and number of Teen Burger sales, But is a period variable cost. Any cost that goes up as a direct result of an increase in output would…

• 570 Words
• 3 Pages
Good Essays
• Good Essays

variable cost per unit plus the total fixed cost plus profit (Kimmel, Weygand, & Kieso, 2011, Ch 18.).…

• 415 Words
• 3 Pages
Good Essays
• Satisfactory Essays

Labour |Total Product |Marginal Product |Fixed Cost |Variable Cost |Total Cost |Marginal Cost | |0 |0 | ___ |800 |0 |800 | _______ | |1 |60 |60 |800 |160 |960 |160 | |2 |180 |120 |800 |300 |1100 |140 | |3 |260 |80 |800 |450 |1250 |150 | |4 |230 |-30 |800 |575 |1375 |125 |…

• 683 Words
• 3 Pages
Satisfactory Essays
• Good Essays

The cost of production is comprised of several factors: fixed costs; variable costs; and the total cost. The fixed costs are defined as “costs that are spent and cannot be changed in the period of time under consideration” (Colander, 2010, p. 283). The variable costs are defined as ‘cost that changes as output changes” (Colander, 2010, p. 284). This is seen when there are hired workers, costing an hourly wage and the job takes more hours than foreseen, your variable costs can shift higher or lower. Total cost is the combination of the two above factors.…

• 347 Words
• 2 Pages
Good Essays
• Good Essays

The analysis is performed by given plant characteristic (production capacity and associated fixed costs) for existing facilities and planned facilities, profit margins given by car lines depending on manufacturing plant, demand for 3 different car models, and demand diversion amount associated with unsatisfactory demand for each model. A rigorous analysis by Microsoft Excel with Solver Add-in indicated that Giant Motor Company needs to implement the renovation plan and shut down its existing manufacturing facilities. From first plant, the company should produce 1.400.000 units of Lyra and 100.000 units of Libra and from second plant, the company should produce 1.000.000 units of Libra and 800.000 units of Hydra. Based on this production plan, the company shall achieve maximum total profit of 4.040.000 USD.…

• 855 Words
• 5 Pages
Good Essays
• Satisfactory Essays

McKenna Company manufactured 1,000 units during April with a total overhead budget of \$12,400. However, while manufacturing the 1,000 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report is lettered in the following set of data:…

• 272 Words
• 2 Pages
Satisfactory Essays
• Good Essays

Cost is one of the primary considerations while marketing a product or a service. Being a low cost producer, the product accepted by the consumer offer sustainability and can outperform competitors. Lower price and better quality of a product will ensure higher demand and higher profitability. To estimate the actual cost of production, the operations manager must address labour, materials, scrap generations, overhead, and other initial cost of design and development, etc.…

• 2995 Words
• 12 Pages
Good Essays
• Good Essays

This study examines the different types of costs such as opportunity, implicit, explicit, fixed, variable and average costs that a firm would incur in order to carry out the production process. It talks about different types of cost curves to understand various measures of cost and establish a relationship between the changing patterns of different cost curves. It also tells how costs vary significantly in the long run and in the short run and how it effects the firms’ production and pricing decisions. Apart from the standard model, it also tells about the real world scenario in which the situations are even more complex than that of a text book. IT emphasizes the ground for economies of scale and economies of scope. It gives an overall picture of knick – knacks one has to possess in order to enter the market scene.…

• 4187 Words
• 17 Pages
Good Essays
• Powerful Essays

Marginal Revenue = ∆ in Total Revenue that results from selling 1 more unit of output.…

• 659 Words
• 3 Pages
Powerful Essays
• Good Essays

Planned purchase rates for all goods and services in the economy at various price levels.…

• 5851 Words
• 37 Pages
Good Essays
• Satisfactory Essays

Jan Fixed costs: Space rent Custodial services Computer leases Maintenance Depreciation Power Wages: Operations Systems development Admnistration Sales Sales promotions Total fixed costs I Corporate services Total fixed costs II Variable cost per hour: Power Wages operations Materials Variable unit cost per hour 8.000 1.240 95.000 5.400 26.180 Feb 8.000 1.240 95.000 5.400 26.180 Mar 8.000 1.240 95.000 5.400 26.180 Average 8.000 1.240 95.000 5.400 26.180 181 24.898 12.000 9.000 11.200 7.677 200.776 15.236 216.012…

• 452 Words
• 2 Pages
Satisfactory Essays
• Good Essays

additional worker, while the nominal wage is the cost. Comparing the benefit to the cost,…

• 2054 Words
• 9 Pages
Good Essays