Question

Aki Ambrose has developed a new device that is so exciting that she plans to quit her job in order to produce and market it on a large scale. Aki will rent a garage for $ 300 per month for production purposes. Aki has already taken an industrial design course at the local community college to help prepare for this endeavor. The course cost $ 300. Aki will rent production equipment at a monthly cost of $ 800. She estimates that the cost of the material will be $ 5 per unit and the cost of labor will be $ 3 per unit. She will hire workers and spend her time promoting the product. To do this, she will quit her job, which pays $ 4,000 a month. Advertising and promotion will cost $ 900 per month.

1.a Following the cost analysis for Aki, which of the following statements is true:

a. Advertising and promotion are variable costs that cannot be incorporated

b. Advertising and promotion are incorporable costs

c. Garage and equipment rents are fixed fixed costs

d. Garage and equipment rents are fixed costs that cannot be incorporated.

1.b Following the cost analysis for Aki, which of the following statements is true:

a.The raw material and direct labor constitute variable costs which cannot be incorporated

b. Raw material and direct labor constitute variable costs that can be incorporated

c. Raw material and direct labor constitute fixed costs that can be incorporated

d. Raw material and direct labor are fixed costs that cannot be incorporated

1.c Following the cost analysis for Aki, which of the following statements is true:

a. The salary of $ 4000 per month is an opportunity cost and the cost of the course is a sunk cost

b. The salary of $ 4,000 per month is a sunk cost and the course cost is an opportunity cost.

c. The salary of $ 4,000 per month and the cost of the course are opportunity costs. d. The salary of $ 4,000 per month and the cost of the course are sunk costs

1.d If Aki produces and sells 1,000 devices in its first month and each device sells for $ 16, then Aki's profit for the month would be:

a. $ 6,000

b. $ 8,000

c. $ 4,200

d. $ 6,900

1.e Aki is considering selling online. If it does, it must pay the delivery charges which will be $ 1.10 per device. Joining the online marketplace costs $ 1,500 per month. She expects her sales to double if she sells online. Should Aki sell online?

a. Yes, because the profit will increase by $ 4,300

b. No, because the profit will decrease by $ 4,300

c. No, because the profit will decrease by $ 10,300

d. Yes, because the profit will increase by $ 10,300

1.f After having been in business for 3 months, the owner who rents the garage to him for his production sent him an invoice for the public services. Aki was surprised because she had not planned a budget for public services, but when examining her lease, she accepts that she must pay them. The utility bills include fixed and variable costs depending on its use.

Using the extreme point method, the variable and fixed cost elements of Aki's utility bill each month, in the form of equation Y = a + b.X, would be:

Months	Kilowatt hours used	Public Services
November	2004	$378
December	1995	$380
January	2339	$435

a. The unit variable cost per kilowatt hour used is $ 0.18 and the total fixed cost is $ 344

b. The unit variable cost per kilowatt hour used is $ 0.18 and the total fixed cost is $ 55

c. The unit variable cost per kilowatt hour used is $ 0.18 and the total fixed cost is $ 610

d. The unit variable cost per kilowatt hour used is $ 0.16 and the total fixed cost is $ 61

Answer 1