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Economics Web Quest:
Costs of Production
Designed by
North Heights Alternative School - Amarillo, TX
| Introduction | Task | Process | Resources | Evaluation | Conclusion |
How much does it cost? The cost of production usually answers that question. Because the cost of inputs influences efficient production decisions, a business must analyze costs before making its decisions. To make the decision making process easier, cost is divided into several different categories. This web quest is designed to help you to understand some of them: variable cost and fixed cost and total cost.
In this web quest you will use an imaginary company’s
production costs to calculate its profits. You will need to use the information
provided in the resources for explanations of costs of production. The
following is information you will need to complete your Power Point
Presentation.
The company you work for,
Aquatics Inc., has just begun selling a new type of aquarium called the Natural
Neptune. After three months of sales, Hector Morales, the company president has
asked you to determine the profit earned by the new aquariums.
Jane Manolaskas, a sales representative, informs you that the price of each Natural Neptune is $11.00. She also provides you with the following production and sales figures: July, 1000, August, 2000, September, 2500.
The following is information regarding production costs.
Materials for each aquarium:
61/2 sq. ft. of glass ( 6.5 )
10 ft. steel L-beams (1/2-inch size)
Materials costs:
Glass: Up to 10,000 sq. ft. per month ------------------------------------$0.50 per sq. ft.
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10,000 to 20,000 sq.ft. per month--------------------------------$0.40 per sq. ft. |
| More than 20,000 sq. ft. per month-------------------------------$0.35 per sq. ft. |
Steel: (no price break for quantity)----------------------------------------$0.10 per ft.
Miscellaneous (cement, polish, paint, and so on )--------------------------$0.05 per aquarium
Labor Costs:
Wages, projected on per item basis--------------------------------------------$1.50 per aquarium
Overhead costs:
Administrative salaries----------------------------------------------------------$2000 per month
Rent on building----------------------------------------------------------------$ 650 per month
Electricity and telephone--------------------------------------------------------$ 280 per month
Machinery leasing *------------------------------------------------------------$ 320 per month
*Note: If we increase production to exceed 3,500 aquariums
per month, we will need to lease an extra machine, which will cost an
additional $320 per month.
Create a cover slide for Variable Costs of Production Using the information provided in the Task, you will determine the variable cost, fixed cost and total cost for the months of July, August, And September. Create a transition slide for each month. Title: Cost of production for the month of _____________.
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A. |
Variable costs for the month of July |
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How many square feet of glass were required to produce all the aquariums in July? |
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How much did the glass cost per square foot? |
| t | How much did the glass cost per aquarium? |
| t | How much did the steel cost
per aquarium? |
| t | How much did the steel cost
per aquarium? |
| t | How much did the miscellaneous cost per aquarium? |
| t | How much did labor cost per aquarium? |
| t | What were the total variable costs (glass, steel, miscellaneous materials, and labor) per aquarium for the month of July? |
| t | What were the total variable costs for the month of July? |
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B. |
Fixed costs ( overhead ) for the month of July |
| t | What are the total fixed costs for the month of July? |
| t | What are the fixed costs per aquarium for the month of July? |
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C. |
What is the total cost of production per aquarium for the month of July? |
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D. |
What is the total cost of production for the month of July? |
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E. |
Follow the steps in parts A, B, C, and D to determine the variable, the fixed, and the total costs per |
| aquarium and per month for August and September. Create your slides in the same manner as July. | |
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On your next slides, you will calculate the total sales, total profit, and profit as percent of sales during the months of July, August, and September.* |
| *Create a slide with a table (6 rows and 4 columns) showing the above information. | |
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Using information from the Task: |
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| t | Determine the total amount of money earned in sales for the months of July, August, and September* |
| t | Determine the profit per month for each of the three months* |
| t | Determine each month’s profit as a percentage of sales* |
| *Create a slide with a table (4 rows and 4 columns) showing the above information. | |
| Create a slide with the following information: | |
| Use the information you have obtained from you calculations. | |
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If production of the Natural Neptune aquarium rose to 4,000 units per month for October, what would be the effect on total fixed costs? (Repeat the |
| steps in A., B., C., and D. above) | |
| t | If production and sales of the aquarium both rose to 4,000 units per month for October, what would be the effect on profit? |
http://hadm.sph.sc.edu/COURSES/ECON/Cost/Cost.html
http://bized.ac.uk/stafsup/options/notes/econ203.htm
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Participation: Constructive use of classroom time |
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Knowledge: Shows understanding of material Able to answer questions |
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Length: Long enough to cover assigned material |
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Calculations: Calculations should support data |
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Content |
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Design of slides: Creativity Easy to follow and see |
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Originality |
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The business of production requires one to know how much to produce and what price to charge for their product. That is determined in part by having the knowledge to figure the variable, the fixed and the total costs of production. I hope you have gained a more thorough understanding of the costs of production as a result of this web quest.
| Introduction | Task | Process | Resources | Evaluation | Conclusion |
