Question

Mr. T has a small pressing firm where he presses sesame seeds to extract sesame oil. He buys the sesame seeds from farmers who live in nearby villages and sells the sesame oil to an oil merchant in town. He produces one kilo of sesame oil from 5 kilos of sesame seeds. The firm has an oil press with the following cost figures: Price of the oil press 14 000 dollars Scrap value Life 2 000 10 years The other fixed costs of the firm are: Rent 200 dollars per month Municipal taxes 50 dollars per month 1 450 dollars per Worker month He buys the sesame seeds at a price of 50 cents (half a dollar) per kilo. He extracts 1 kilo of sesame oil from 5 kilos of sesame seeds. The maximum monthly capacity of the press is 15 tons of sesame seeds per month (or half a ton per day.) This means that the range of his monthly sesame seed utilization is between 1 ton and 15 tons. Using a range of sesame seed utilization between 1 ton per month and 15 tons per month please calculate: 1. The total fixed costs of the firm 2. The average fixed costs of the firm 3. The average variable cost of the firm 4. The total variable costs of the firm 5. The average total cost of the firm and 6. The total cost of the firm Using the information you have calculated please find out how much profit he would be making if he sold 1 ton (1 000 kilos) of sesame oil at a price of 4 dollars per kilo in the month of May 2020. Please show all calculations.

Answer 1

Fixed Costs		Amount
Depreciation per month	(14000-2000)/(12*10)	100		Depreciable value/(10 years*12 months
Rent		200
Municipal tax		50
Labour		450
Total Fixed Cost (Sum of above)	A	800
Variable Cost
Seed Cost	B	0.5	Cost per kilo
Utilization (Seed Kg)	C	1,000	15,000
Oil	D=C*0.2	200	3,000	Ratio of oil to seed is 1:5
Fixed Costs	A	800	800
Average Fixed Cost	E=A/D	4.00	0.27
Variable Cost	F=C*B	500	7,500
Average Variable Cost	G=F/D	2.50	2.50
Total Cost	H=A+F	1,300	8,300
Average Total Cost	I=H/D	6.50	2.77
Revenue	J=4*D	800	12,000
Profit	K=J-H	-500	3,700

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