Calculate the total product cost of one chair

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Question - Diana has recently followed a course in furniture making and has decided to set up her own workshop from which she will be producing wooden chairs. She starts renting a small workshop at an annual rental cost of $6,000, business rates amount to $1,000 per annum, while workshop heating and lighting will cost $800 annually. The direct cost information for one wooden chair is given below:

Direct materials: Wood 18

Glue 0.6

Screws 1

Sandpaper 0.4

Direct labour 25

Diana decides that her workshop is capable of producing a normal output of 1000 chairs annually.

(a) Calculate the total product cost of one chair.

Based on calculations of the total product cost per unit, Diana decides to set selling price at $85. She has just heard another entrepreneur talking about break even analysis and she wants to apply this concept in her business.

(b) Calculate the break-even point ad Margin of Safety, both in units and value, for the business.

Reference no: EM132537802

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