Question
Assume that you have been hired as a managing consultant by a company to offer some advice that will help it make a decision as to whether it should shut down completely or continue its operations. It currently uses 100 workers to produce 6,000 units of output per month(working 20 days/month). The daily wage per worker is $70, and the price of the firm's output is $32. The cost of other variable inputs is $2000 per day. You are told that the firm's fixed cost is high enough so that the firm's total costs exceed its total revenue. The marginal cost of the last unit is $30. 1. Briefly describe the details of the fictitious business that you created for this assignment. 2. Assess the current environmental scan factors that are relevant to the decision making process. Determine the factors that will have the greatest impact on plant operations and management
Explanation / Answer
Ok, let's look at this on a per-unit basis: The price per unit is stated at $25 - so that's the revenue per unit The costs in this problem are broken down into 3 categories: wages, other variable, and fixed. To find cost of wages that are being applied to each unit first we find the number of units produced by each worker (200,000 / 50,000) = 4 units/worker/day Then we take one worker's wages for one day and spread that across each day's production for that worker ($80 / 4) = $20 / unit