1. Elements of fixed cost.

 Rent
 Insurance
 Depreciation
 Taxes salaries
 Indirect labor

Elements of variable cost.

 Raw materials
 Direct labor
 Sales commission
 Supplies
 Fuel
2.
Fixed cost Variable cost
Rent Sales commission
Insurance (building and equipment) Supplies
Clerical salaries Utilities
Payroll taxes Direct labor
Administrative salaries Raw materials
Interest on borrowed money
Property taxes
Depreciation

𝑘𝑚
1 000 000
𝑦𝑒𝑎𝑟
3. a) number of cows = 365 𝑑𝑎𝑦𝑠 15 𝑘𝑚 = 183 cows
( )( )
1 𝑦𝑒𝑎𝑟 𝑑𝑎𝑦𝑠

$5
Annual cost = 1 000 000 km/year x = $83 333 per year.
60 𝑘𝑚

𝑘𝑚
1 000 000 $3
𝑦𝑒𝑎𝑟
b) cost petro-fuel car = 30 𝑘𝑚 x = $100 000 per year
1 𝑙𝑖𝑡𝑟𝑒
𝑙𝑖𝑡𝑟𝑒

It would cost more $16 667 per year when using petro-fueled car compare with fleet of cars with
cow gas.

4. A)
i. p= 600 – 0.05D, CF= RM900 000/month, CV= RM131.50 per unit
The unit demand (D) is 1000 board feet.
𝑎−𝑐𝑣 600−131.50
D*= = = 4685 unit/month
2𝑏 2(0.05)
 ii. Profit (Loss) = Total Revenue – Total Cost
= 600D - 0.05D2 – (900 000 + 131.50D)
= [600(4685) – 0.05(4685)2] – [900 000 + 131.50(4685)]
= RM197 461.25 / month (maximum profit)
b) Breakeven occurs when profit = 0
-0.05D2 + 600D = 900 000 + 131.50D
Profit = 0 = -0.05D2 + 600D = 900 000 + 131.50D
= -0.05D2 + 468.50D = 900 000

−468.5± √(468.5)2 −4(−0.05)(−810 000 000 000)

D’ = 2(−0.05)
−468.5−198.7266
D1’ = = 6 672.266 units/month
−0.1
−468.5−198.7266
D2’ = = 2697.734 units/month
−0.1

5. a) If you purchase a new car, you are turning away from a risky 20% per year return. If you are a risk
taker, your opportunity cost is 20% or it is 6% per year.

b) If your preference is as follows:

1) high tech company common stock with 20% value increase per year.
2) Deposit with 6% earning per year
3) Purchasing a new car
The next best return you’ve given up common stock with 20% value increase per year. This is your
opportunity cost.

If your preference is as follows:

1) High tech company common stock with 20% value increase per year.
2) Purchasing a new car
3) Deposit with 6% earning per year
The next best return you’ve given up the benefits that you might have by purchasing a new car.
This is your opportunity cost.