# Production Costs Questions

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Activity
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1. Quest manufacturing incurs the following costs per unit: labor \$100/unit, materials \$50/unit, and rent \$100,000/month. If the Quest produces 500,000 units a month,
calculate the following:
a. Total variable costs
b. Total fixed costs
c. Total costs
2. You have a plant that produces copiers for sale. Your costs for producing copiers are 1: \$42, 2: \$44, 3: \$47, 4: \$50,5: \$54, 6: \$60, 7: \$69, and 8: \$80. What are your
marginal costs for each copier produced? If you sell a copier for \$15 per copier, what quantity of copiers sale would you want?
3. You own a plant that produces 10,000 copiers per year. Your fixed costs are \$50,000 per year. The marginal cost per copier is a constant \$5. What is your break-even
price? What would be your break-even price if you were to sell 70% more copiers?
4. Suppose you make an initial investment of \$70,000 that will return \$20,000/year for four years (assume the \$20,000 is received each year at the end of the year). Is this
a profitable investment if the discount rate is 15%?
5. A US company has revenue of \$5.5 million and total costs of \$7.5 million, which are or can be broken down into total fixed cost of \$3 million and total variable cost of
\$4.5 million. The net loss on the firm’s income statement is reported as \$2,000,000 (ignoring tax implications). In prior periods, the firm had reported profits on its
operations.
a. What decision should the firm make regarding operations over the short term?
b. What decision should the firm make regarding operations over the long term?
C. Assume the same business scenario except that revenue is now \$5.0 million, and total costs of \$7.5 million, which are or can be broken down into total fixed cost of
\$3 million and total variable cost of \$4.5 million, which creates a net loss of \$1.2 million. What decision should the firm make regarding operations in this case?