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Faiza Al Harthy has invented a new type of bread machine. After giving the matter much thought, Faizahas decided to quit her $8,000 per month job with a consulting firm and produce and sell the bread machine full time. Faiza will rent a garage that will be used as a production plant. The rent will be $450 per month. Faiza will rent production equipment at a cost of $1,000 per month.

The cost of materials for each bread machine will be $0.60. Faiza will hire workers to produce the bread machine. They will be paid $01.50 for each completed unit. Faiza will rent a room in the house next door for use as her sales office. The rent will be $150 per month. She has arranged for the telephone company to attach a recording device to her home phone to get off-hours messages from customers.The device will increase her monthly phone bill by $40. Electricity cost per unit is $2 per unit that is used for production. Faiza has some money in savings that is earning interest of $2,000 per year. These savings will be withdrawn and used for about a year to get the business going. To sell her bread machine, Faiza will advertise heavily in the local area. Advertising costs will be $800 per month. In addition, Faiza will pay a sales commission of $0.20 for each bread machine sold.

For the time being, Faiza does not intend to draw any salary from the new company.

Faiza has already paid the legal and filing fees to incorporate her business. These fees amounted to $1,200.

Required:

a) Prepare an answer sheet with the following column headings: (3marks)

	Cost Behaviour		Product Cost			PeriodCost	SunkCost	Opportunity
Name of Cost	Fixed	Variable	DM	DL	MOH			Cost

b) All of the costs you have listed above, except one, would be differential costs between the alternatives of Faiza producing bread machine or staying with the consulting firm. Which cost is not differential? Explain.

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