Cost Concepts

01. Khaled has developed a new technology device that is so exciting he is considering quitting his job in order to produce and market it on a large-scale basis. Khaled will rent a small factory for 1,000dhs per month for production purposes. Utilities will cost 500dhs per month. Khaled has already taken an industrial design course at Dubai Mens College to help prepare for this venture. The course cost 800dhs. Khaled will rent production equipment at a monthly cost of 3,000dhs. He estimates the material cost per unit will be 20dhs, and the labor cost will be 12dhs per unit. He will hire workers and spend his time promoting the product. To do this he will quit his job which pays 25,000dhs per month. Advertising and promotion will cost 3,500dhs per month.

Required:

1. Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "Xs" placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost and a fixed cost; there would be an "X" placed under each of these headings opposite the cost.
2. Calculate the total Fixed cost
3. Calculate the total variable cost per unit
4. If the machine max production capacity is 1000 units per month, what is the selling price he should set to break even monthly?
5. If Khaled to earn a profit equal to his current salary, for how much he should sell the unit?
6. What is the fixed cost per unit for maximum production?
7. What is the total variable cost for maximum production?
8. If Khalid set the selling price for 70DHS and managed to reduce the total fixed cost by 2% what is the profit increase percentage
9. If Khalid set the selling price for 70DHS and managed to reduce the total variable cost by 2% what is the profit increase percentage

None manufacturing cost Fixed Cost Manufacturing Overhead Cost Opportunity Cost Direct Cost Selling/marketing Cost Sunk Cost Variable Cost Small factory rent X Utilities X Cost of Industrial Design Course X Equipment rent X Material Cost X X Labor Cost X Advertising X X Current Salary X