Ahmedabad Manufacturing Corporation (AMC) is based in western India and uses India’s currency, the rupee (symbol: ). AMC has been operating in its own manufacturing facility for over 15 years. Given the size of the facility, AMC has been able to rent the back portion of the building to a local retailer to use as a warehouse. It has now decided not to renew the lease and instead to use the area to manufacture a new product. AMC will lose a rental income of 1,800,000 per year.

The direct materials and direct labour per unit for the new product will amount to 4,000 and 2,200, respectively. AMC does not have sufficient equipment to produce the product; hence, it will rent the required equipment at a cost of 250,000 per month. The company will require additional space to store the raw material and work-in-process inventories associated with the new product; space can be rented in a nearby facility for 26,500 per month. AMC has always amortized its building on a straight-line basis and will continue to do so. The depreciation amount for the back portion of the building is 300,000 per year.

Other costs include the following:

Production supervisor salary........................................₹ 52,000 per month
Electricity for operating the machines.........................₹ 54 per unit
Delivery costs..................................................................₹ 390 per unit
Advertising.......................................................................₹ 3,100,000 per year

Rather than borrow money to buy raw materials, pay workers’ salaries, and meet other expenses, AMC’s management has decided to liquidate some temporary investments that provided a return of 92,000 per year.

Required:

1. Classify the above costs using the following categories: behaviour, function, and relevance.

2. Assume that AMC will produce 1,800 units per month (90% of its capacity of 2,000 units per month). Compute the product cost per unit. Round your answer to two decimal places.

3. Assume AMC receives an order for 300 new units (i.e., total production will be 2,100 units). Compute the additional or incremental costs that AMC will incur in the manufacture and delivery of these 300 units.