Leena Biggs operates a highly successful art business that produces authentic reproductions of well-known paintings. She...
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Leena Biggs operates a highly successful art business that produces authentic reproductions of well-known paintings. She is currently considering adding two new products: reproductions of Mona Lisa and Girl with a Pearl Earring. Further information relevant to her decision is as follows: Leena anticipates being able to sell each Mona Lisa for $550 and each Girl with the Pearl Earring for $700. The cost of frames is $150 for a Mona Lisa and $120 for Girl with the Pearl Earring. Paint costs are $90 and $80, respectively. It takes 3 hours for an artist to reproduce a Mona Lisa and 2 hours for an artist to reproduce Girl with a Pearl Earring. Labor costs $60 per hour but is limited because only two qualified artists are available and each can only work a maximum of 4 weeks each month (and 36 hours of actual painting time per week). The new operation would require a new art studio, and so incur incremental fixed costs (rent and utilities) of $8.500/month. Leena believes the new products will be popular with her customer base and that she will be able to sell all the paintings she can produce at the prices indicated above. Required: a. What is the break-even point (in units) if Leena only produces Mona Lisa? b. What is the break-even point (in units) if Leena only produces Girl with the Pearl Earring? c. How many paintings of each type should Leena produce to maximize profit given the constraint (artist time) she faces? d. Leena hires two artists to do the work, Sona and Sam. After they are hired Leena learns that Sona can only reproduce Mona Lisa while Sam can only reproduce Girl with a Pearl Earring. How does this change your answer to c. above, if at all? e. A local restaurant chain approaches Leena, indicating that they're willing to buy 20 Mona Lisa's but will only do so at a reduced price of $450 each. Should Leena accept the special order (assuming she has available capacity)? Leena Biggs operates a highly successful art business that produces authentic reproductions of well-known paintings. She is currently considering adding two new products: reproductions of Mona Lisa and Girl with a Pearl Earring. Further information relevant to her decision is as follows: Leena anticipates being able to sell each Mona Lisa for $550 and each Girl with the Pearl Earring for $700. The cost of frames is $150 for a Mona Lisa and $120 for Girl with the Pearl Earring. Paint costs are $90 and $80, respectively. It takes 3 hours for an artist to reproduce a Mona Lisa and 2 hours for an artist to reproduce Girl with a Pearl Earring. Labor costs $60 per hour but is limited because only two qualified artists are available and each can only work a maximum of 4 weeks each month (and 36 hours of actual painting time per week). The new operation would require a new art studio, and so incur incremental fixed costs (rent and utilities) of $8.500/month. Leena believes the new products will be popular with her customer base and that she will be able to sell all the paintings she can produce at the prices indicated above. Required: a. What is the break-even point (in units) if Leena only produces Mona Lisa? b. What is the break-even point (in units) if Leena only produces Girl with the Pearl Earring? c. How many paintings of each type should Leena produce to maximize profit given the constraint (artist time) she faces? d. Leena hires two artists to do the work, Sona and Sam. After they are hired Leena learns that Sona can only reproduce Mona Lisa while Sam can only reproduce Girl with a Pearl Earring. How does this change your answer to c. above, if at all? e. A local restaurant chain approaches Leena, indicating that they're willing to buy 20 Mona Lisa's but will only do so at a reduced price of $450 each. Should Leena accept the special order (assuming she has available capacity)?
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Lets analyze each part of Leenas art business decision step by step a Breakeven Point for Producing Only Mona Lisa To calculate the breakeven point when producing only Mona Lisa paintings we need to c... View the full answer
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