Suppose the demand of a product produced by a production firm is 8000 per year (1 year = 312 days) and it occurs at a constant rate. The production rate of the product per year is 10000. The set up cost of setting a machine for the production of the product is 600 Taka. The selling price per unit of the product is 1000 Taka. The inventory holding cost per unit per year is calculated as 5% of the selling price per unit. Assuming selling of the product starts from the outset of production and there is no occurrence of shortages of the product, b) Let the cost of inspection is given by 30Q, where $30 is the cost per unit of inspection and the cost of passing defectives is estimated as 12000/Q. i. Find the optimal amount of inspection that minimizes the associated total cost. ii. Find the associated minimal total cost. iii.Find the total costs at Q = 16 and Q = 24 and highlight their relationship with the cost of optimal quantity of inspection.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
solve i, ii and iii please.
Suppose the demand of a product produced by a production firm is 8000 per year (1 year = 312 days) and it occurs at a constant rate. The production rate of the product per year is 10000. The set up cost of setting a machine for the production of the product is 600 Taka. The selling price per unit of the product is 1000 Taka. The inventory holding cost per unit per year is calculated as 5% of the selling price per unit. Assuming selling of the product starts from the outset of production and there is no occurrence of shortages of the product,
b) Let the cost of inspection is given by 30Q, where $30 is the cost per unit of inspection and the cost of passing defectives is estimated as 12000/Q.
i. Find the optimal amount of inspection that minimizes the associated total cost.
ii. Find the associated minimal total cost.
iii.Find the total costs at Q = 16 and Q = 24 and highlight their relationship with the cost of optimal quantity of inspection.
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