Graded AssignmentBackt You have been working for home-building companies for a n
ID: 1103837 • Letter: G
Question
Graded AssignmentBackt You have been working for home-building companies for a number of years. You enjoy construction work, and now you want to start your own home-building company that you will run yourself. You quit your previous job that had been paying $40,000 per year. You have $40,000 in your savings account that you withdraw to start this company. The savings account had been paying you 5% interest. Because the $40,000 from your savings is not enough to start the company, you also borrow $2,300,000 from the bank. (The bank manager is willing to loan you such a large amount because he knows of your reputation and experience in the home-building industry) You use the money to hire workers and buy the tools, machinery, and raw materials with which you will build houses. The cost per worker is $20,000 per year. In your first year, you plan to hire 48 workers to do the construction work, which means that the annual labor cost of your company will be $960,000 (48 x $20,000). With 48 workers, your company can build seven houses. You must also buy raw materials-land, wood, nails, plasterboard, and so forth. Each house requires $20,000 worth of raw materials. The cost of raw materials for seven houses is $140,000 (7 x $20,000). Finally, the bank charges 6% interest on your loan. The interest cost is $138,000 (6% of$2,300,000). 1.4. When you sell seven homes during the year, what are the total variable costs for your construction company? $140,000 0 B. $960,000 O c. $1,100,000 O D. $40,000 E. $2,300,000 Submit Answer Continue without savingExplanation / Answer
TVC = Labor cost + raw material cost
TVC = 960,000 + 140,000
TVC = 1100,000
Thus correct option is (c) $1,100,000
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