Essay: Frozen Food Profit Calculations

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SAMPLE EXCERPT:

[. . .] However, roll outs of new developing technology can be a huge short-term investment that would ultimately lock up some of the firm's free cash. Additionally, it can cost the firm dramatically because it needs to retrain employees to keep up with the latest technology. New hires may be necessary that understand the new technologies better in order to ensure that a new technology roll out will be successfully. Although these costs can be quite high, they are necessary. It is important for a firm to stay up-to-date and not to allow the out dated technology to become a major factor in lagging productivity in comparison to other competing firms.

Question 3

In order to make the most well informed decisions, it is crucial to analyze both the short and long run cost functions. These evaluations use the average fixed cost (AFC) which is set at 1,175.49, the average variable cost (AVC) which is set at 186.04, and the average total cost (ATC) which is set at 1,348. These numbers are set when the demand is at an optimal setting.

For the short-term evaluation, let this research assume that the firm will continue operating with a production goal set at 6,000 units each month. Each month has an average of 20 working days, which accounts for the exclusion of weekends and any potential holidays during that month. This ultimately means that the firm produces 300 units a day by utilizing all 100 of its workers. In order to understand worker productivity (WP), all one has to do is divide the number of units produced each day by the number of workers. This leaves an average worker producing 3 units a day within the given circumstances.

ATC= TC/Q = (160,000,000)/Q + 100 + 2 * 0.0063212Q = 1,348

===(AVC= TVC/Q = 0.71 = 186.04

===(AFC= TFC/Q = 1,175.49

To calculate these computations further Q* = 13,611

TC = 160,000,000 + 100Q + 0.0063212Q2

160,000,000+100(13,611) + 0.0063212(13,611)2

160,000,000 + 1,361,100+ 1,171,061.22

TC=162532161.22

VC = 100Q + 0.0063212Q2

100(13611) + 0.0063212(13611)2

1361100 + 1,171,061.22

VC= 25321161.22

MC= 100 + 0.0126424Q

=100 + 13611.0126424

MC= 13711.0126424

In this case, ATC is not minimized because it is not very close to the calculations of MC. Still, the ATC is lower than the MC, at 1,348, whereas the MC is at 13,711. Ultimately, from a short-term perspective, if the conditions and costs of materials do not change, the price per unit will also remain very similar to what it is at right now. This means that the firm will be able to continue production by covering all costs without the need to shut down.

From a long-term perspective, the TVC, AVC, and AC will all grow at a very similar rate that is in correlation to the annual levels of productions. Ultimately, the variable costs per unit will remain similar to the costs now even if the firm increases production. Yet with an increase in production overall, this means that the variable costs on average overall will increase as correlated to the increases in production. At the same time, the total annual cost of each unit will decrease as production increases. Overall, this means that the firm is in a healthy position for production in both the short and long run.

4)Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response. (Hint: Your firm's price must cover average variable costs in the short run and average total costs in the long run to continue operations.)

As of right now, the firm is in a healthy position from both a short- and long-term perspective. Ultimately, the AVC is covered by the price. Still, there are scenarios where the situation may change, meaning that the firm would actually have to discontinue operations because continuing would ultimately result in massive loss. First and foremost, there is the possibility of fixed costs increasing. This may mean that suppliers gain power within the market and demand higher prices for the cost of the raw materials needed to make the frozen food units. Too steep of increases in raw materials would ultimately throw off the long-term financing structure, putting the firm in danger of losses. [END OF PREVIEW]

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Frozen Food Profit Calculations.  (2014, August 12).  Retrieved May 24, 2019, from https://www.essaytown.com/subjects/paper/frozen-food-profit-calculations/8859587

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"Frozen Food Profit Calculations."  Essaytown.com.  August 12, 2014.  Accessed May 24, 2019.
https://www.essaytown.com/subjects/paper/frozen-food-profit-calculations/8859587.