Question No: 1

The variable cost per unit of production can be calculated, after considering the relevant variable costs that would be charged on the units producedin whichthe total cost of components were included, along with power and smaller gauge wiring cost and the cost to assemble the unit in house, through the use of employees working nine hours shifts, with 30 minutes unpaid lunch break. Calculating the variable cost per units of each of these variable and multiplying them with the relevant units produced in each order, would enable us to determine the total variable cost per unit at 500 and 1000 units produced, as illustrated in the exhibit below. However, it can be assessed that the cost of producing 1000 units was lesser than the cost of production of 500 units. This could be attributed to the decrease in upper arm and electronic chip component cost from 195 to 170 and 110 to 100 respectively. This, in turn, helps to evaluate that it was cheaper to produce 1000 unit batch rather than the initial 500 unit batch.

Exhibit-1

Moximed Inc Harvard Case Solution & Analysis

Question No: 2

The absorption cost per unit can be calculated after considering all the relevant cost associated with the production of units including all overhead and production costs. Which, in turn, would enable us, to determine the total cost of production, after calculating the total variable cost of production at different levels of units produced. Then adding the amount with the total cost of overheads to determine the total cost of production with respect to different units produced and dividing this amount with the total units produced, to acquire the absorption cost per unit, as illustrated in the Exhibit below. It can be evaluated that, as the production units rises, the absorption cost per unit decreases. Therefore, it can be determined that, under absorption costing method, it was more beneficial for the company to produce maximum capacity of units allowed, to enhance their profitability ratios through cost leadership in the market.

Exhibit-2

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