Question

Gita is an auto mechanic and runs a small repair shop. She hires one mechanic, and the usual labor cost is $20,000 per year (but it could go up and down depending on how much is produced), pays a monthly rent of $5,000 towards the lease of the premises where her repair shop is located, and spends $20,000 per year on materials needed for repairing cars and trucks. She has invested $40,000 of her own savings in heavy equipment (air and strut compressors, brake lathes, heavy-duty lifts etc.) that could earn her $4,000 per year if invested elsewhere. She has been offered $40,000 per year by a competitor to work as a mechanic for them and she estimates the value of income she could earn in her spare time to be $5,000. The repair shop’s total annual revenue is $250,000. What is Gita’s yearly fixed cost? $_____.

Answer 1

Based on the information Gita’s yearly fixed cost is  $60,000.

Since Gita’s pays monthly rent of the amount of $5,000 per year which means that the yearly fixed cost is $60,000.

The yearly fixed cost is calculated using this formula

Fixed cost=Rent× Number of month in a year

Where:

Rent=$5,000

Number of month in a year=12 months

Let plug in the formula

Fixed cost=$5,000×12 months

Fixed cost=$60,000

Inconclusion Gita’s yearly fixed cost is  $60,000.

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