Question

Question

A- Keys Company accumulates the following data concerning a mixed cost, using miles as the activity level.

                     Miles Driven         Total Cost

January            10,000                 $15,000

February            8,000                   13,500

March                9,000                   14,400

April                  7,500                   12,500

Required:

1. Compute the variable and fixed cost elements using the high-low method
2. If it is estimated that 12,000 miles will be drive in May, what is the expected total cost for May?                                                                                                                        (7.5 Marks)

B- XYZ Company sells its only product for $40 per unit. Its total fixed costs are $180,000 per annum. Its CM ratio is 20%. XYZ plans to sell 16,000 units this year.

Required:

1. Calculate CM per unit and the variable cost per unit.

2. Calculate break-even point in unit sales and in dollar sales?

3. Calculate the unit sales and dollar sales required to achieve a target profit of $60,000 per year?

4. Assume that the company is able to reduce its variable costs by $4 per unit and accordingly the sales price per unit will also be reduced by 5%.

1. Calculate the company’s new break-even point in unit sales and in dollar sales?
2. Calculate dollar sales required to achieve a target profit of $60,000?

5. In your opinion, did you think the company would be better off with the assumed reductions in

    (4)? Why?                                                                                                                                                

C-Management of Farah Corporation has asked your help as an intern in preparing some key reports for April. Direct labor cost was $25,000, Total manufacturing costs during April were $176,000. Direct labor cost was 20% of prime cost.

Required: Calculate direct material cost and the manufacturing overhead cost.

                   

D- Sun Company and Moon Company are identical in all respects except that most of Sun company costs are variable, and most of Moon company costs are fixed. In case sales increase (for both companies), which of the two companies will tend to realize the greatest increase in its net income? Why?

Answer 1

Solution to first question..

Variable cost= (Cost at highest miles driven - Cost at lowest miles driven) / (Highest miles driven - Lowest miles driven)

= ( $ 15,000 - $ 12,500 ) / ( 10,000 miles - 7,500 miles)

= $ 1 per mile

Fixed cost = Total cost - Variable cost

= $ 15,000 - (10,000 x $ 1 )

= $ 5,000

If 12,000 miles are driven total cost will be:

= Fixed cost + Variable costs

= $ 5,000 + ( $ 12,000 x $ 1)

= $ 17,000

So , total cost if 12,000 miles are driven is $ 17,000