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Hakuto Singapore Problem

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Hakuto Singapore Problem
Class Exercise in Cost Analysis

Hakuto Singapore Pte Ltd. Which produces electrical components has decided to break into the market for electrical switches. Studies on both the cost of producing the switches and the potential market have been carried out. At the Board meeting the information on costs was presented The Cost accountant later presented the data in the following table showing the average cost and levels of output for different numbers of men.

Cost of Production as out put varies (SGDs)

Total Cost |Machine Cost |Wage Cost |Maintenance Cost |Freight Cost |Output |Average Cost |No. Machines |No. Men | |400 |100 |100 |100 |100 |15 |26.7 |1 |1 | |600 |100 |200 |100 |200 |30 |20.0 |1 |2 | |800 |100 |300 |100 |300 |45 |17.8 |1 |3 | |1000 |100 |400 |100 |400 |60 |16.7 |1 |4 | |1200 |100 |500 |100 |500 |75 |16.0 |1 |5 | |1400 |100 |600 |100 |600 |90 |15.6 |1 |6 | |1600 |100 |700 |100 |700 |105 |15.2 |1 |7 | |1800 |100 |800 |100 |800 |120 |15.0 |1 |8 | |2200 |200 |900 |200 |900 |135 |16.3 |2 |9 | |2400 |200 |1000 |200 |1000 |150 |16.0 |2 |10 | |2600 |200 |1100 |200 |1100 |165 |15.8 |2 |11 | |2800 |200 |1200 |200 |1200 |180 |15.6 |2 |12 | |3000 |200 |1300 |200 |1300 |195 |15.4 |2 |30 | |3200 |200 |1400 |200 |1400 |210 |15.2 |2 |14 | |3400 |200 |1500 |200 |1500 |225 |15.1 |2 |15 | |3600 |200 |1600 |200 |1600 |240 |15.0 |2 |16 | |4000 |300 |1700 |300 |1700 |255 |15.7 |3 |17 | |4200 |300 |1800 |300 |1800 |270 |15.6 |3 |18 | |4400 |300 |1900 |300 |1900 |285 |15.4 |3 |19 | |4600 |300 |2000 |300 |2000 |300 |15.3 |3 |20 | |4800 |300 |2100 |300 |2100 |315 |15.2 |3 |21 | |5000 |300 |2200 |300 |2200 |330 |15.2 |3 |22 | |5200 |300 |2300 |300 |2300 |345 |15.1 |3 |23 | |5400 |300 |2400 |300 |2400 |360 |15.0 |3 |24 | |
Machine Cost= 100
Wage Rate = 100
Output per man = 15
Freight charges = 100 per 15 units of output
Maintenance cost = 100 per machine

What do you think was the reason for introducing an additional machine and expand capacity each time?
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