Question

Adamia Bakery Pty Ltd sells multi-flavours of cupcakes to customers. The business has recently become concerned about its ability to plan and control the cost. Adam and Damia, the company’s founders believe that they can use the cost equation functions (Y = a + bX) to summarise the company’s monthly cost. These are the cost incurred in the business:

Monthly rental of the premise = $15,000 per month

Maintenance of the ovens = $2,500 per month

Salary of the production bakers = $28 per labour hour

Raw material cost to produce a cupcake = $5.50 per cupcake

REQUIRED:

Using the cost equation functions, calculate an estimate of the company’s total costs if Adamia Bakery Pty Ltd production bakers work 430 hours in a single month of July 2020.

Answer 1

Monthly rental = $15,000

Maintenance cost of ovens = $2,500

Salary to production bakers = Hours worked by production bakers * Salary of production bakers per hour

= 430 hours * $28 per labor hour

= $12,040

Total fixed cost = $15,000 + $2,500 + $12,040 i.e. $29,540

Raw material cost to produce a cupcake = $5.50 per cupcake

The cost Equation shall be:

Total Cost = Monthly fixed cost + ($5.50 * number of cupcakes produced)

y = $29,540 + $5.50X; where X is the number of cupcakes produced