Question

Hannah Ortega is considering expanding her business. She plans to hire a salesperson to cover trade...

Hannah Ortega is considering expanding her business. She plans to hire a salesperson to cover trade shows. Because of compensation, travel expenses, and booth rental, fixed costs for a trade show are expected to be $11,000. The booth will be open 25 hours during the trade show. Ms. Ortega also plans to add a new product line, ProOffice, which will cost $172 per package. She will continue to sell the existing product, EZRecords, which costs $100 per package. Ms. Garcia believes that the salesperson will spend approximately 15 hours selling EZRecords and 10 hours marketing ProOffice.

Required

  1. Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 78 units of EZRecords and 44 units of ProOffice.

  2. Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 202 units of EZRecords and 98 units of ProOffice.

Business   Accounting   
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Answer #1

a)

Calculation of Fixed cost for each units

Total fixed cost = $ 11000

Total hours = 25 hours

For EZRecords=15 hours

For ProOffice= 10 hours

fixed cost for EZRecords = 11000*15/25= $ 6600

fixed cost for ProOffice= 11000*10/25= $ $ 4400

Variable cost for EZRecords= 78*100 = $ 7800

variable cost for ProOffice= 44*172 =$ 7568

Total cost for EZRecords= 6600+7800= $ 14400

Unit cost for EZRecords= $ 14400/78=$ 184.62

Total cost for ProOffice= 4400+7568=$ 11968

Unit cost for ProOffice= $ 11968/44 = $ 272

b)

Fixed cost for EZRecords= $ 6600

variable cost for EZRecords= 202*100= $ 20200

Total cost for EZRecords= 6600+20200=$ 26800

Unit cost for EZRecords= $ 26800/202= $ 132.67

Fixed cost for ProOffice=$ 4400

Variable cost for ProOffice= 98*172 = $ 16856

Total cost for ProOffice= 4400+16856 = $ 21256

Unit cost for ProOffice= $ 21256/98= $ 216.90

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