The company produces and sells one product A, the price of one unit is $500. The cost
Question:
The company produces and sells one product A, the price of one unit is $500.
The cost for the product are as follows:
direct material - $170, direct labour - $130, Variable production overheads - $40, Total Fixed production overheads - $90000 based on production level of 1500 units.
Calculate:
total prime cost, total marginal cost, total contribution, total profit and contribution per unit
Explain all these terms: prime cost, marginal cost, total contribution, total profit and contribution per unit
Explain the change in contribution per unit. What does the change mean to the company, is it positive or negative?
How do you think - how will the profit per unit of output change (increase or decrease) if the company reaches a production capacity of 1,500 units and why?
What could be the reasons why a company produces less than its production capacity? What are the disadvantages (and advantages) of this situation?
Expert Answer:
To calculate the required values we need to first find the total cost of producing 1500 units of product A Total Cost Direct Material Cost Direct Labor Cost Variable Production Overheads Fixed Product... View the full answer
