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Sample Essay

The company can lower its fixed costs by several means such as negotiating with suppliers and landlord to lower purchase cost or rent to further reduce losses and eventually make the operation profitable. Therefore, my recommendation to management is that the unprofitable operation should be continued until and unless the total revenues of the operation fall below the level of total variable costs. The computations for the unprofitable operation are illustrated to assist the management in evaluating total revenue and total variable costs.

The variable costs of the workers can be calculated as follows.

Variable cost of workers = 70,000 X 100

Variable cost of workers = $7,000,000

Other Variable Costs = $500,000

The total variable costs can be calculated by adding the two variable costs.

Total Variable Cost = 7,000,000 + 500,000

Total Variable Cost = 7,500,000

The revenues of the company can be calculated by multiplying the price per unit by total output

Total Revenue = 300,000 X 30

Total Revenue = $9,000,000

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