In order to explore the feasibility of the venture, Sam is planning to undertake break-even analysis based on his estimates for the tennis racquet project.

Sam realizes that the first step in his analysis of the figures must be to identify those costs that are variable and those that are fixed.

Sam anticipates that the costs of producing tennis racquets would be as shown in Table 10.2.

Sam estimates that he will be able to produce 900 racquets in his first year.

a) From the following list of costs, decide which are fixed and which are variable:
* Hire of the machine.
* Material costs.
* Labour costs.

b) What is the variable cost per racquet?

c) What are the total fixed costs in a year?

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Table 10.2 Hire of machine Material costs Labour costs - Racquet framing Racquet-stringing 550 per month to hire 8.50 per racquet 9 per hour The machine requires one person to operate it. Four racquets can be framed every hour. Staff who string racquets can hand-string two racquets in an hour.