Fixed Costs are the rent paid for the production facility, the utility bills, some salaries (the doorman, the secretary, the guards or even the manager), and accounting, legal and consultancy bills. On the other hand, Variable Costs are incurred by the acquisition of raw materials (flower, sugar, baking soda etc.), packaging materials, distribution costs, the salaries of the kitchen staff or various taxes.

I have prepared two tables wherein I have calculated the Fixed, Variable and Total Costs for the first and the second alternatives. In the first case, the Total Variable Costs amount to $11,900, while the Total Costs reach $16,900. The Cost for one unit (bar) is 99 cents.

Total

Washington

New York

Los Angeles

Demand

17,000

10,000

5,000

2,000

Production capacity

20,000

Production

17,000

Fixed Costs

5,000

Variable Costs/unit

Variable Costs

11,900

Total Costs

16,900

Costs per unit

0.994117647

Price

Revenue

34,000

Profit

17,100

The second alternative...
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