A country runs a passport office issuing passports to its citizens. The empty passport booklets are bought from a specialised manufacturer at the cost of10 currency units (CU) per passport. The passport office itself has two units: the application unit, which operates the front desk and takes phone enquiries, but also verifies the personal information of the passport applicants; and the production unit, which prints the personal information into the passport and applies the necessary seals and stamps. The manager of the passport unit is supported by a few staff members who are responsible for managerial tasks. The statement of financial performance of the passport office shows the following items: Revenue Cost 105 786 passports @ CU 50 each Passport booklets 120 000 @ CU 10 each CU 5 293 800 CU 1 200 000 Payroll CU 2 090 000 thereof Application unit 16 full-time equivalent CU 1 440 000 Production unit 4 full-time equivalent CU 320 000 Management 3 full-time equivalent CU 330 000 Rental of property (government internal) CU 250 000 Postage, office supplies, etc. CU 607 900 Depreciation of equipment Total cost CU 200 000 CU 4 347 900 They used 106 500 passport booklets to produce the 105 786 passports, as there was some wastage. The remaining13 500 booklets will be used in future periods. One full-time equivalent equals2 000 working hours per year. Contribution margin1 is defined as revenue minus the passport booklets minus the work of the application and production unit. Contribution margin2 is after all costs except the government internal rental of property. Contribution margin 3 is after all costs.

(a) What was the full cost of each passport sold? What was the profit based on full cost?

(b) Prepare a schedule of all three levels of contribution margin, both for the entire operation (based on passports sold) as well as per passport sold.

(c) Imagine a new passport law leads to an increase in demand. The number of passports sold is expected to increase by 20 per cent. What is the impact on the cost for each passport based on the full cost model and based on the marginal cost model?