Noel Stewart Bought a Machine Two Years Ago for £500

question 55

Multiple Choice

Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204.
Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10.
Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order.
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If Noel produced 100 units his fixed cost per unit would be:

• A)£10,000.
• B)£100.
• C)£1,000.
• D)£0.

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Definitions:

Mark-Up Percentage

The percentage added to the cost of goods to cover overhead and profit.

Pricing Policy

A strategic approach adopted by a company to set the cost of its products or services, often considering factors like market demand, production costs, and competition.

Linear Programming

A mathematical technique used for optimizing operations, focusing on achieving the best outcome in a model with linear relationships.

Constraint Lines

Limitations or bottlenecks within a production process that restrict the flow of production or services.