Surfs Up (Pty) Ltd manufactures surfboards in East London. They sell to professional surfers that come to South Africa for international competitions. They have built their brand from a garage at one of the directors homes and have managed to gain a large market share in South Africa.

They have recently been advertised in an Australian surf magazine and have noticed a sizeable increase in the number of orders received following the magazine being published. Before they start accepting the orders they would like to check that they have priced their surfboards correctly.

The following information relates to the companys manufacturing process:

1.Rental of the factory is R10 000 per month.

2. Electricity in the factory is R5 000 per month. Electricity is used evenly throughout the factory.

3.The factory is can produce 100 surfboards a month, it currently operates at 80% capacity.

4. The factory foremans wages are R1 000 per week.

5. Labourers working on the factory line get paid per unit produced and earn R1 000 per surfboard.

6. Commission of 4% on the selling price of each unit sold is given to the sales representative who makes the sale. All products are sold within the month they are manufactured.

7. Each unit has packaging costs of R100. Packaging is classified as indirect materials.

8. Advertising and marketing costs amount to R4 000 per month for all surfboards produced.

9. Administrative staff (Sue who takes the orders and Jane who is the accountant) earn R3 000 each per month; they are support staff for all surfboards produced.

10. Each board is covered in wax during production, each tin of wax costs R600 and can Cover 50 surfboards

11. The material used to mould the surfboard comes in a liquid form. A 10 litre tin costs R1 000 and makes two surfboards.

12. Surfs Up pays a local surfer R2 500 per month to promote their surfboards.

13. A surfboard sells for R3 800.

Other information: Assume there are four weeks in a production month.

Note: Round off to the nearest Rand.

4.1 How many surfboards are produced in one month? Use this answer in your calculations in the questions which follow.

4.2 Calculate the variable cost of a surfboard.

4.3 Calculate the total fixed manufacturing (production) cost per month.

4.4 Calculate the total nonmanufacturing costs per month at the current production capacity.

4.5 Calculate the monthly breakeven point in units for surfboards.

4.6 Explain what opportunity cost is. Supplement your explanation with an appropriate example.