Cost segregation- this is done to determine the rate of past cost variability, then to establish the

estimated fixed cost.

a. High-low point method

b. Least square method
c. Visual fit method

Exercise:

1. Details of a company is as follows:

Sales 870 Raw Materials, beg 10

Purchases or Raw 190 Raw Material, end 40
Materials
Direct Labor 200 WIP, beg 20
Manufacturing Overhead 230 WIP, end 50
Administrative Expenses 150 Finished Goods, Beg 90
Selling Expenses 140 Finished Goods, end 130
 Prepare a schedule of Cost of Goods Manufactures
 Computer the Cost of Goods Sold
 Prepare an Income Statement

2. A management provided their cost data for two levels of their monthly sales volume. The
company sells their product for 133.60 per unit.

Sales volume (units) 4,000 5,000

Cost of Sales P383,600 479,500
Selling, General, Administrative Cost P124,400 P136,000

 Compute for the total contribution margin when 4,300 units are sold

3. Macks Corporation has provided the following production and average cost data for two
levels of monthly production volume. The company produces a single product.

Production Volume 1,000 units 2,000 units

Direct materials P15.20 per unit P15.20 per unit
Direct Labor P30.50 per unit P30.50 per unit
Manufacturing Overhead P54.10 per unit P37.40 per unit
 Compute for the total monthly fixed manufacturing cost?

4. Use the data below to compute for the needed requirement:

 Warranty Cost P72,000
Employee Training 28,000
Repair of units prior to shipment to customers 14,000
Quality Engineering 61,000
Product inspection during manufacturing 35,000
Travel to customers sites to perform repairs 6,200
 Compute the company’s prevention, appraisal, internal failure, and external failure
cost.

5. A review of Macks Corporation’s accounting records found that at a volume of 90,000 units,
the variable and fixed cost per unit amounted to P8 and P4, respectively. On the basis of this
information, what amount of total cost would Macks anticipate at a volume of 85,000 units?

RELEVANT RANGE- range of activity that reflects the company’s normal operating range

TOTAL PER COST

AMOUNT DRIVER
Varies directly Constant
VC
with cost driver
Constant Varies Inversely
FC
with cost driver

COST-VOLUME PROFIT ANALYSIS

-systematic examination of the relationships among cost, cost driver, and profit

ELEMENTS:

1. Sales
2. Total Fixed Cost
3. Variable cost per unit
4. Sales Mix