Answer to Question #317031 in Microeconomics for lydia

Question

Sonja Cc is a small firm that makes outfits for customers tailored for their functions, in May 2021 she was ordered for a baby shower (BS)

The details for the Job BS are as follows:

Direct materials: 12 units at N$124.

Direct labour: 20 hours for department A at N$25 per hour.

10 hours for department B at N$30 per hour

12 hours for department C at N$27.50 per hour

The firm allocates manufacturing overheads budgeted at N$2500 in department A, N$2000 in department B and N$3000 in department C.

The firm expects a profit of 55% on the total cost of BS

Required:

a)Calculate the cost of the baby shower BS

b)Calculate the selling price of a baby shower (BS)

c)If the number of outfits are the same for each type of function, which function should Sonja choose to produce and why?

Answer 1

a)Calculate the cost of the baby shower BS

$124\times12 =1488$

$20\times25 =500$

$10\times30 = 300$

$12\times27.50 =330$

The total variable cost $= N2618$

The fixed cost is ;

$2500+2000+3000 =7500$

Total Cost $= 7500+2618$

$= N10118$

b) The selling price of the BS

$55$ percent profit is

$\frac{155}{100}\times 10118 = 15682.9$

Per unit = $\frac{15682.9}{12}= N1306.9$