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NORTH SOUTH UNIVERSITY

“Flower Vase”
Section-01
Submitted to,
Mr. Sheikh Mohammad Rabby
Lecturer,
Department of Accounting & Finance

Submitted by,
Name ID
Iftay Khairul Ibrahim 1420974030
August 26th 2018
Mr. Sheikh Mohammad Rabby
Lecturer,
Dept. of Accounting & Finance (BBA)
North South University, Dhaka, Bangladesh
Subject: Permission for submitting the Group Project Report

Dear Sir,
Thank you for giving us the opportunity to make this project report which is the most important
part of our “ACT 333” course. As per your project guideline form, we have prepared our report
about the accountings of our product “FLOWER VASE”. In this report, we will be focusing on
the costing and pricing methods and strategies, budgeting, CVP analysis etc. for our assigned
product. Through the whole project we can gather lots of practical experience of using different
costing and pricing methods as well as different practical forecasting and assumption. As well
as, it also helps us to strengthen our communication skill and team management skill and
interpersonal skills in terms of various accounting tactics and estimations.

We enjoyed working on this, hope you will find it innovative. Have a good day.

Yours Sincerely,

Iftay Khairul ibrahim


Abstract
In this part, we would like to give the idea of overall report in a summarized way. Our company
name is “The Flower Bee Shop” and we are making flower vase and then decorate it with many
different way, based on our own design. Basically our purpose is to provide delightful decorated
flower vase to customers with a reasonable price, also provide it to customers lowered price
than others competitor. Our materials are bottle(glass), rope, glue, artificial flower, scissor,
anti-cutter etc. In this report, we are basically, identify the direct cost and indirect costs and
few manufacturing overheads just like rent and utility cost. On the other hand, we also provide
support cost and selling cost. Besides, we identify variable and fixed cost and arranging our
materials cost in prime and conversion cost. We have already using simple costing system and
for ensuring the accuracy we have also done the ABC costing method for determine the product
cost. We have also made profitability report for both simple costing and activity based costing
system and comparing the costs and strategies. We have also prepared different budget just
like the revenue budget, production budget, direct material usage budget, direct material
purchase budget, manufacturing overhead cost budget, ending inventory budget and cost of
goods sold budget. Then we already discussed about traditional income statement and
budgeted contribution format income statement and also break-even in unit s and sales,
breakeven margin, margin of safety and lastly we are done with Sensitivity analysis for making
better decision.
Table of content
Name of Topics Pages
Introduction 5
Industry Analysis 5
Manufacturing Process 5
Maximum we can Produce 6
Production Cost 7
Support Cost and Selling Cost 8
Analysis of Cost 8
Simple Costing System 11
Cost Strategy of Allocating Support Cost 12

Activity Based Costing 14


Unit Cost Under ABC 16
Pricing Strategy 16
Product Line Probability Report 17
Budget 18
Determining Break-Even Point 24
Determining the Degree of Operating Leverage 25

Sensitivity analysis 26

Conclusion 27
Introduction
For a long time, flowers involved a vital place in our lives. Flowers are viewed as an image of
adoration, excellence and an endowment of nature. On the other hand, a vase is an open
holder. It can be produced using various materials, for example, pottery, glass, non-rusting
metals, for example, aluminum, metal, bronze or tempered steel. All things considered, looking
at a vase of flowers, nobody would propose that the glass vase simply made itself by
characteristic procedures. Nobody would surmise that a lightning strike on a heap of sand made
the vase. No, the vase plainly demonstrates that a gifted glassblower, utilizing his knowledge,
planned it. It is unreasonable to suspect something. There have sufficient demand of flower
vase in our country. Many people want to buy this for their home décor. We are providing the
flower vase in the base of customers’ demand. We make our products based on our consumer’s
preferences. Our product will be reasonable than others. We value our customer by satisfy
their needs. These are the main issue for choosing this assigned product.

Industry Analysis
Flower Vase is under the Home Décor Industry. Our competitors are:
 Online shops
 Physical Home décor shop
 Flower based shop
Our main competitors are online shops, because they provide different kinds of flower vase
with reasonable price. But their weakness is their maximum products are not good. We will use
this weakness and go forward.

Manufacturing Process
Our company is based on manufacturing and selling. The raw materials for our product are:
 Glass bottle.
 Rope.
 Glue gun.
 Anti-cutter.
 Scissor.
Firstly, we screw rope in the glass bottle.
Secondly, we use anti-cutter to plain the rope over the glass bottle
Thirdly, we use glue to add flower in the bottle.
Lastly, we use anti-cutter to do size the flower and use seizer to cut the rope.
Maximum we can produce
By considering our work process, we have estimated a certain number of products which can be
produced in a month. According to our presumption, we have 5 labors. We need 60 minutes to
produce a single unit of product working together. So, in an hour we can produce 1 unit of
flower vase.
Number of labor 5 labor
Number of working days in a month 25 days
Working hours per day 6 hours
Total working hour per day(5*6) 30 hours
Total working hours per month(30*25) 750 hours
Hours require to produce one product 1 hour
Maximum number of products in a month 750 products

Direct Material Cost

Items Cost per unit

Bottle (1 piece) Tk. 50

Rope (1 bundle) Tk. 15

Flower( 1 piece random Tk. 28


color)

Glue (one tube) Tk. 5

Direct material per unit Tk. 103

Direct Manufacturing Labor Cost

Monthly direct labor cost will be = 5 labors*Tk. 4200 per month


= Tk. 21000
So, direct labor cost per unit = Tk. 21000/750units
= Tk. 28
Manufacturing Overhead Cost

Items Calculation Cost

Indirect Materials

Scissor 5 pieces*25 tk per Tk. 125


scissor

Glue Gun 5 pieces*150 Tk 750

Per Unit Indirect Cost TK.875/750 unit Tk. 1.16

Other MOH

Rent Tk. 10 per s.f.*500 s.f. Tk. 5000

Furnitures (Table and TK. 2000


chair)
Utility Tk. 1000

MOH Cost Per Unit Tk. 11.7

Production Cost
The summation of direct materials, direct labor, and manufacturing overhead is production
cost. Following table shows the production cost per unit of flower vase.

Inputs Cost Per Unit

Direct Materials Tk. 103

Direct Manufacturing Labor Tk. 28

Manufacturing Overhead Tk. 11.7

Production Cost Tk. 142.7


Support cost and selling cost
Support Cost
Support costs are mainly the supporting department’s cost. These costs are incurred for
supporting the production of product. Our supporting costs are mainly different types of
communication medium cost for example Telephone bill, Internet bill. These incurred indirectly.
Support cost Total cost

Internet bill (Information department) Tk. 500

Telephone bill (Communication department) Tk. 550

Total support cost Tk. 1050

Selling Cost
These costs are related to sell the product and marketing related activity just like delivery cost
or transportation cost.

Selling cost Total cost

Delivery cost/ transportation cost Tk. 1200

Total selling cost Tk. 1200

Analysis of cost
Fixed Cost
This type of cost is remaining unchanged in total for a given period of time and within the
relevant range. On the other hand, per unit fixed cost is changing inversely on the basis of
production volume.
Fixed cost Total cost
Rent Tk. 5000
Utility Tk. 1000
Furnitures TK. 2000
Telephone Tk. 550
Internet Tk. 500
Delivery/ Transportation Tk. 1200
Total cost per unit (10250/750) Tk.13.6(Approx.)
Variable Cost
A cost that changes in total in proportion to a change in the level of activity but per unit
variable cost remains the same within the relevant range.

Variable cost Total Cost


Bottle Tk. 50
Rope Tk. 15
Flower Tk. 28
Glue Tk. 5
Scissor Tk. 0.17
Direct Labor cost Tk. 28
Total Variable cost Per Unit Tk. 126.2

Direct cost
Costs which we can trace in a product in an economically feasible way and its related to a
particular cost object.

Direct cost Total


Direct materials:
Bottle Tk. 50
Rope Tk. 15
Flower Tk. 28
Glue Tk. 5
Direct labor Tk. 28
Total Direct Cost Per Unit Tk.126
Indirect cost
Costs that are not traced in an economically feasible way and these types of costs are indirectly
related to product, and we allocate these cost based on cost object.

Indirect cost Cost per unit


Indirect materials:
Scissor Tk. 0.17
Other Indirect Cost
Rent (tk5000/750units) Tk. 6.67
Utility (tk1000/units750) Tk. 1.33
Telephone bill (tk550/750units) Tk. 0.73
Internet bill (tk500/750units) Tk. 0.67
Transportation (tk1200/750units) Tk. 1.60
Total Indirect cost Per unit Tk. 12

Prime cost
This cost is consisting of all direct cost. Our direct costs are basically direct material and direct
labor cost.
Prime cost Cost per unit

Direct materials Tk. 103

Direct labor Tk. 28

Prime Cost Per Unit Tk. 131


Conversion cost
Basically, it represents all manufacturing costs that are incurred to convert direct material into
finished goods. In a word, all manufacturing cost other than direct materials is conversion cost.

Conversion Cost Cost per unit

Direct Labor Tk. 28

MOH Tk. 11.7

Conversion cost per unit Tk. 39.7

Full Cost
Full cost is basically the mixture of all variable and fixed cost. We need this to determine the
selling price of a product.

Variable cost per unit Tk. 126.2

Fixed cost per unit Tk. 13.6

Full cost per unit Tk. 139.8

Simple Costing System

We will use Direct Manufacturing labor hour as the cost allocation base to allocate indirect
cost to each flower vase under simple costing system.

Total MOH = Produce Unit*MOH per unit


= 750 unit* 11.7 tk.
= tk. 8775
MOH Rate = Total MOH/ Total Direct Labor Hour
= tk. 8775/750 labor hour
= tk. 11.7 per direct labor hour

Under simple costing system companies use a broad average rate for assigning the cost of
resources to cost object when individual product uses those resources in non-uniform way.
Under this system company allocates its total indirect cost using a single cost allocation base.

Unit product cost under simple costing:

Inputs Cost Per Unit

Direct Material Tk. 103

Direct Labor Tk. 28

MOH Tk. 11.7

Unit Cost Tk. 142.7

Cost strategy of allocating support cost


Direct method is simple and involves less calculation to do. It is also less time consuming and
easy to perform. On the other hand, we have less support department and cost. As a result of
these factors we have decided to use direct method to allocate costs of support department to
operating department.
Details Support Departments Operational Departments
Information Communication
department department
(Internet
bill) (Telephone bill) Testing Decoration Sales
Cost Incurred Tk. 500 Tk. 550
Allocation of Information
department cost
(500*10/90;50/90;30/9
0) (tk. 500) - Tk. 55.55 Tk. 277.78 Tk. 166.68
Allocation of
Communication
Department cost
(550*20/90;15/90,55/90) - (tk. 550) Tk. 122.22 Tk. 91.67 Tk. 336.11

Total 0 0 Tk. 177.77 Tk. 369.45 Tk. 502.79

Our company has one support department, Communication department, which has two cost
internet bill and telephone bill. And has three operating departments, Testing, Decoration and
Sales. Most of our internet cost occurs in decorating flower vase because we need get different
idea from different sources online about how to make our product more lucrative. As a result,
we have assigned 50% of our internet bill on Decoration department. 30% of our internet bill
has been assigned to sales department, only 10% of the internet cost has been assigned to
Testing department. We also assumed that internet bill 10% provide on its own support
department of telephone bill.
65% of the telephone bill incurred on sales department to get to know from customers which
type of product they want. 20% of telephone bill has been assigned to Testing department. 15%
of the telephone cost incurred on Decoration department. Here we assigned 10% telephone bill
on internet bill.
Activity Based Costing
ABC system is a costing system in which each individual activity is identified as a cost object and
there is separate cost driver for each of the activity.

The table in the next page shows all the indirect costs and cost drivers for each of them:
Cost
Cost Items Allocation Unit of Cost per unit

Bases allocation bases of allocation base

Number of units
Scissor 750 Units tk. 125 tk. 0.17 per unit
produced
Number of square
Rent 500 tk. 5000 tk. 10 per sq. feet
square feet feet

Per unit Units


Glue Gun 5 Tk. 750 Tk. 150 Per unit

No of unit Units
Furniture 750 Tk.2000 Tk.2.67 Per unit
produced

Number of direct
Utility 750 hour tk. 1000 tk. 1.33 per direct labor hour
labor hours

Number of per phone


Telephone Bill 275 calls tk. 550 tk. 2
phone call call

Number of unit
Internet Bill 750 Calls tk. 500 tk.0.66 per unit
produced

Transportation Number of unit per units to


750 Units tk. 1200 tk. 1.6
Bill sold be sold

We purchased Scissor on the basis of number of unit produced. So allocation base will be on
number of unit to be produced. Room is rented on the basis of square feet and total cost varies
with respect to a change in the size of the room. So, number of square feet is the best cost
driver for rent. Glue gun & furniture allocation base will be on number of unit we have. Our
utility costs include electricity, water bill. And these costs tend to vary over different level of
direct labor hour. So, Number of direct labor hour is the best cost allocation base for utility.
Telephone bill depends on the number of phone calls. Cost will be less if number of call is less
and cost will be more if number of call is more. So, number of phone call has the best cause and
effect relationship with telephone bill cost. Total internet bill changes if there is a changes in
the unit produced. So, number of unit produced is the best cost drivers for Internet and
telephone bill. Transportation cost will change on the basis of unit to be sold.

Overhead rate for Scissor = Total Scissor Cost / No. of units produced
= TK. 125 / 750
= TK. 0.17 per unit

Overhead rate for Rent = Total Rent Cost/ No. of Sq. Feet
= TK. 5000 / 500
=Tk. 10 per Sq. Feet

Overhead rate for glue gun = Total cost of glue gun/ No. of glue gun
= TK. 750 / 5
=Tk. 150 per glue gun

Overhead rate for furniture = Total cost of furniture/ No. of unit produced
= TK. 2000/750
=Tk. 2.67 per unit

Overhead rate for Utility = Total Utility cost / No. of direct labor hours
= TK. 1000/ 750
= Tk. 1.33 per DLH

Overhead rate for Telephone bill = Total Telephone Bill / No. of phone calls
= TK. 550 /275
= Tk. 2 per phone call

Overhead rate for Internet bill = Total Internet Bill / No. unit produced
= TK. 500 / 750
= Tk. 0.66 per unit

Overhead rate for Transportation bill = Total Transportation Bill / No. unit sold
= TK. 1200/ 750
= Tk. 1.6 per Unit sold
Unit Cost under ABC
Cost Items Calculation Cost Per Unit

Direct Material Tk. 103

Direct Manufacturing Labor Tk. 28

Indirect Cost

Scissor Tk. 125/750 Tk. 0.17

Rent 0.67sf.* tk. 12 per sf. Tk. 6.7


(tk51per unit rent/tk12per
sf.)
Furniture TK.2000/750 Tk.2.67

Utility Tk. 1000/750units Tk. 1.33

Glue gun Tk. 750/750units Tk. 1

Telephone Bill Tk. 550/750 units Tk. 0.73

Internet Bill Tk. 500/750 units Tk.0.66

Transportation Bill Tk. 1200/675 units Tk. 1.78

Total Tk. 146

Pricing Strategy

We are using cost-based pricing strategy. And we are expecting 30% return on investment. Our
product price per unit will be 200 tk. (cost based) and mark up is 65%.

Cash Tk. 190000


Mobile Tk. 7500
Light Tk. 500
Furniture Tk. 2000
Total Invested Capital TK.200000
Calculation:
Estimated unit be sold = 675
Cost = tk. 142.7
Invested Capital = tk. 200000
Estimated percentage of return on investment = 30%
Estimated operating income = 200000*.30 = tk. 60000
The estimated income per unit = tk. 60000/675 = 40.5 tk. (Rounded)
The price will be = 142.7+40.5 = tk. 183
Mark up = 65%

Product Line Profitability Report

Under simple costing


Calculation Amount
Revenue Tk. 183*675units Tk. 123525
Less: COGS Tk. 142.7*675units Tk. 96323
Operating income Tk. 27202
Profit Margin 22%

Activity based costing


Items Calculation Amount

Revenue Tk. 183*675 units Tk. 123525

Less. COGS Tk. 146*675 units Tk. 98550

Gross Margin Tk. 24975

Less. Operating Expenses

Telephone Bill Tk. 550

Utility Bill Tk.1000

Internet Bill Tk. 500


Transportation Tk. 1200

Total Activity Cost (tk. 3250)

Operating Income Tk. 21725

Profit Margin 21%

Our profit margin under simple costing is approximately 22% of sales revenue. On the other
hand, our profit margin under activity based costing is approximately 21% of Sales Revenue.
Simple costing does not take into account the indirect costs whereas activity based costing
considers all indirect costs. Indirect costs are allocated by activity based costing by determining
and applying different allocation base to each cost. Therefore, activity based costing gives a
more accurate measure of cost. That is why, our profit margin is lower under activity based
costing than under simple costing.

Budget
Budget is basically the quantitative expression of a proposed plan of action by management for
a specified period. For different type of Budget Schedule, we are assuming something- Our
target Ending finished goods inventory is 15% of Budgeted unit sales
• Our Target Ending Direct material inventory is 15% of total material used in
production
• We have no beginning finished goods and direct material inventory
• Our target budgeted sales is 375 units

Schedule 1: Sales Budget

Product Unit Selling Total


price/unit

Flower Vase 675 183 Tk. 123525


Schedule 2: Production Budget

Total Units
Budgeted Sales Unit 675
(+) Target Ending Finished Goods 75
Inventory
(-) Beginning Finished Goods Inventory 0

Units to Be Produced 750 units

Schedule 3 (A): Direct Material Usage Budget

Bottle Rope Flower Glue Total


(tk.)
Physical Unit Budget:

Bottle (1*750) 750

Rope (1*750) 750

Flower (1*750) 750

Glue (1/3*750) 250

Total quantity of Direct material 750 750 750 250


to be used
Cost Budget:

Available Form Beginning


Inventory (0)

Available from Purchase

Bottle (750*50) 37500

Rope (15*750) 11250

Flower (28*750) 21000

Glue (5*750) 3750

Total Cost of Direct Material 37500 11250 21000 3750 73500

Schedule 3 (B): Direct Material Purchased Budget

Bottle Rope Flower Glue Total(tk.)

Physical Unit Budget:

production usage 750 750 750 250

(+) target ending inventory 113 113 113 38

total needs 863 863 863 288


(-) beginning Inventory 0 0 0 0

units DM to be purchased 863 863 863 288

Cost Budget:

Bottle(863*50) 43150

Rope(863*15) 12945

Flower(863*28) 24164

Glue(288*15) 4320

Total Cost of Direct Materials to 43150 12945 24164 4320 Tk. 84579
Be Purchased

Schedule 4: Direct Labor Budget

Product Unite DLH Per Total DLHs Wage Rate Total DL


Unit Per hour Cost

Flower Vase 750 1 Hour (750*1) =750 Tk 28 (750*28) =


Tk 21000
Schedule 5: Manufacturing Overhead Budget

Variable MOH Cost


Scissor(5*25) 125
Glue gun (5*150) 750
Fixed MOH
Rent 5000
Utility 1000
Furnitures 2000
TOTAL Tk. 8875

Schedule 6: Ending Inventory Budget

Units Cost per Unit Total Cost (tk.)


Direct Materials
Bottle 75 50 3750
Rope 75 15 1125
Flower 75 28 2100
Glue 75 5 375
Finished goods
Flower Vase 75 142.7 10702.5
Total cost of Tk. 18052.5
ending inventory
Schedule 7: Cost of Goods Sold Budget

From Schedule Total

Beginning Finished Goods 0


Inventory

Add: COGS Manufactured:


Direct material(usage) 3A 73500
Direct Labor 4 21000
Manufacturing Overhead 5 8875 103375 tk
103375 tk
Total cogs available for sale

Less: Ending Finished 18052.5tk


Goods Inventory

Cost of Goods Sold 85322.5 tk

Budgeted Income Statement

Items From Schedule Taka


Revenue Schedule 1 TK 123525
Cost of Goods sold Schedule 7 TK 85322.5
Gross Margin TK 38202.5
Operating cost:
Telephone Bill TK 550
Utility Bill TK 1000
Internet Bill TK 500
Transportation Bill TK 1200
Total Operating Cost TK 3250

Total Operating TK 34952.5


Income
Contribution Format Income Statement

Items From Schedule Taka

Sales Revenue Schedule 1 TK 123525

Less: Variable Cost (VC) [ TK (85185)


TK126.2*675 Unit]

Contribution Margin (CM) TK 38340

Less: Fixed Cost (FC) TK (10250)

Net Operation Income TK 28090

Determining Break-even point

𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
Break-even in unit=𝑆𝑎𝑙𝑒𝑠 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡−𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
10.250
=
183−126.2
=181 units

Break-even sales=𝐶𝑀𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡


𝑝𝑎𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒
***For finding out break-even sales we need to calculate CM ratio first
CM ratio= (Sales-Variable expense)/Selling price
= (183-126.2)/183
=56.8/183
=31%(approx.)
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
So, Break even sales=𝐶𝑀 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒
10.250
= .31
=33.65(around)
Determining the margin of safety
MOS in units= Budgeted sales – Break-even sale(unit)
=675-181
=494

𝑀𝑂𝑆 𝑖𝑛 𝑢𝑛𝑖𝑡𝑠
MOS percentage=𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑠𝑎𝑙𝑒𝑠
494
=675
=73.18%

Determining the degree of operating leverage


It is the risk return trade-off. The formula is under below,

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛
Degree of operating leverage= 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒
38,340
=28,090
=1.36 times

Our Margin of Safety ratio is 73.18%. This means that we are in a safe position. We will be able
to cover our Fixed Cost and reach Break-even. As a result of having a lower Fixed Cost, in terms
of MOS we have lower risk on our production.
Through our data we know our Operating Leverage is 1.36. So, our Contribution margin is 1.36
times of Operating income as result we can say very less amount of contribution margin is
offset by fixed cost and fixed is lower. So, if the sales are decrease by small amount, the
operating income will decrease by very lower amount.
Sensitivity analysis
Case 1: 12%increase of direct material cost

Items Calculation Old cost New cost

Sales Revenue Tk. 183*675 units Tk. 123525 Tk. 123525

Less: Variable cost Tk.126.2*675 units Tk. 85185


Tk. 141.3*675 units Tk. 95378

Contribution margin Tk. 38340 Tk. 28147

Less: Fixed cost Tk. 10250 Tk. 10250

Operating income Tk. 28090 Tk. 17897

Case 2: 10% decrease in demand on our product:


10% decrease in units sold and decreasing unit is 23 units,

Items Calculation Total


Decrease in Sales Tk. 183*68units Tk. 12444
Revenue

Less: Variable cost Tk. 126.2*68 units Tk. 8582


Contribution margin Tk. 3862
Less: Fixed cost Tk. 0
Operating income Tk. 3862

Old Operating Income – Decrease of new Operating Income


= tk. 28090 – tk. 3862
=tk. 24228
Case 3: 15% increase in demand on our product:
15% increase in units sold and increasing unit is 23 units,

Items Calculation Total


Increase in Sales Tk. 183*101units Tk. 18483
Revenue

Less: Variable cost Tk. 126.2*101 units Tk. 12746


Contribution margin Tk. 5737
Less: Fixed cost Tk. 0
Operating income Tk. 5737

Old Operating Income + Decrease of new Operating Income


= tk. 28090 + tk. 5737 =tk. 33827

N.B: As a results of case 2, decreasing 10% demand on our product, our sales and Operating
Income decreasing respectively by 68 units and tk. 3862. On the other hand, as a results of case
3, increasing 15% demand on our product, sales and Operating Income increasing respectively
by 101 units and tk. 5737. Both the cases there is no impact on Fixed Cost.

Conclusion