Noel Stewart Bought a Machine Two Years Ago for £500

question 12

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 1,000 units his total cost would be:

• A)£20,000.
• B)£21,000.
• C)£12,100.
• D)£11,000.

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Definitions:

Surety

A person or entity that takes responsibility for another's performance of an undertaking, such as fulfilling the terms of a contract.

Principal's Obligation

A duty or responsibility that a principal must fulfill as part of an agreement, particularly in agency relationships.

Repayment Period

The time frame agreed upon within a loan agreement for the borrower to pay back the borrowed amount plus any applicable interest.

Promissory Note

Commercial paper or instrument in which the maker promises to pay a specific sum of money to another person, to his order, or to bearer.