Question 1 : Suppose that you have been given a summer job at Fairwings Avionics, a company that

manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned,
has approached a bank for a loan to help finance its tremendous growth. The bank requires financial
statements before approving such a loan.
You have been asked to identify the costs and are given the following list of costs:
1. The cost of the memory chips used in radar set (Tk 70 per chip).
2. Factory heating costs (Tk 43,000 per year).
3. Factory equipment maintenance costs (Tk 54,000 per year).
4. Training costs for new administrative employees (Tk 80,000 per year).
5. The cost of the solder (a mixture of metals) that is used in assembling the radar sets (Tk 22/solder)
6. Telephone expenses incurred by factory management. (Tk 15,000 per month)
7. The costs of shipping completed radar sets to customers. (Tk 47,000 per year)
8. The wages of the workers who assemble the radar sets.(Tk 100 per worker)
Classify the above costs as either product (inventoriable) costs or period (non-inventoriable) costs and
cost behavior for purposes of preparing the financial statements for the bank using the following column
heading: Put (√) mark in the relevant box.
Lists of Cost Manufacturing Non-manufacturing Cost
behavior
Direct Direct Factory Selling & Adminis Vari Fixed
Material Labor O/H Marketing trative able
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.
Question 2: The Reetz Company has its own photocopying department Reetz’s photocopying costs
include costs of copy machines, operators, paper, toner, utilities and so on. We have the following
activity and cost data:

Month Number of copies Photocopying cost

REQUIRED: January 740,000 $55,000
February 390,000 $26,000
March 200,000 $24,000 [5]
April 110,000 $27,000
(a) Using the high May 740,000 $28,000 low method to
establish the fixed and variable
components of photocopying costs.
(b) Express the variable and fixed components of photocopying costs as a cost formula in the form
Y=a+bX
(c) If 250,000 copies are photocopied then what is the total photocopying cost?