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Page |1 Name:_______________________ Period:_______________________ Date:_______________________ Fixed or Variable? Part 1: For each situation, identify whether the cost is a fixed cost or variable cost and then explain why. Example: Ice cream cones: Variable. The cost of ice cream cones varies with the production and selling of ice cream. The more ice cream I sell, the more cones I'm going to need and the higher my costs will be.

1. Factory Rent:

2. Executive salaries:

3. Gasoline for automobile use:

4. Apartment Rent:

5. Workers paid an hourly wage:

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6. Ink for printers: 7. Professionals working on sales commissions:

Part 2: Answer the following questions. 1. Describe marginal analysis. How do economists and operations managers use it?

2. What does it mean when someone says, "break-even point?"

Page |3 Scenario: A company wants to calculate its total wages expense for the month. It has both workers on salary and workers being paid an hourly wage. 3a. Write out the total cost equation (y = m(x) + b) for the company. Total salaries equate to $25,000 and the average hourly rate is $15 per hour. Remember to identify the total, variable, and fixed cost.

3b. Graph the equation.

3c. What would the total costs be if the hourly wage workers worked 4,000 hours? Show your answer.

3d. What would the total costs be if the hourly wage workers worked 5,500 hours? Show your answer.

4. What do the supply curve and the total cost curve have in common? How are they related to each other? (Hint: does one curve determine the other?)

Part 3: Contribution Margin and Break-Even Point Calculations.

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1. If the sales price of a toy is $15, the variable costs are $10, and the total fixed costs are $5000, what is the:

a. Contribution Margin?

b. The Break-Even Point in units?

c. The Break-Even Point in dollars?

2. Zombie Zero Inc. produces a spray can that kills zombies in their tracks. The company made charges $6 for a bottle of spray. The variable cost per spray bottle is $4 and the total fixed costs are $1,000,000. a. Contribution Margin?

b. The Break-Even Point in Units?

c. The Break-Even Point in Dollars?

d. (Bonus Question) If the company wanted to make $5,000,000 in profit instead of just break even, what would the equation be?

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