Marjorie's Mugs Profit Calculation

What are Variable Costs and Fixed Costs?

Variable costs are expenses that change as the quantity of goods or services produced by a company fluctuates. On the other hand, fixed costs are expenses incurred by a business that remain constant regardless of the volume of production.

Variable Costs

Variable costs are costs that vary with the level of production. In the case of Marjorie's Mugs, the variable cost per mug is $7.

Fixed Costs

Fixed costs are expenses that do not change based on the volume of production. For Marjorie's Mugs, the total fixed costs are $1,700.

In the given scenario, Marjorie's Mugs sold 300 mugs last year for $20 each. The variable cost per mug was $7, and the total fixed costs were $1,700. To calculate the profit, we can use the formula:

Profit = (Number of Mugs Sold * (Selling Price - Variable Cost per Mug)) - Total Fixed Costs

Profit = (300 * (20 - 7)) - 1,700 = $2,200

Therefore, Marjorie's Mugs made a profit of $2,200 based on the sales of 300 mugs. This profit represents the difference between the revenue generated from selling the mugs and the total costs incurred, including both variable and fixed costs.