JORDAN, REA MARIZ I.

MANAGEMENT ACCOUNTING & CONTROL

VARIABLE COSTING

Lesson Activity 7. Variable & Fixed Costs

Maricel is a management accountant in an organization. She has been

assigned the task of budgeting payroll costs for the next quarter.

Payroll information of the last 4 quarters is as follows:

Quarte Work Hours Cost in Php

r
1 15,000 400,000
2 20,000 480,000
3 18,000 440,000
4 21,000 500,000

The organization increments salaries and wages by 10% at the start of the
3rd quarter each year. Twenty-three thousand (23,000) hours are expected to be
worked in the first quarter of the next year.

Required: Calculate the following:

1. Variable Cost per Unit
2. Fixed Cost
3. Total Variable Costs
SOLUTION.
Highest working hours = 21,000 hrs (4th quarter)
Lowest working hours= 15,000 hrs (1st quarter)
Cost for the first quarter = P400,000
The inflated cost = P400,000 x 1.10 = P440,000

1. Variable Cost per Unit

Variable cost per unit = P500,000 - 440,000/21,000 hrs - 15,000 hrs
= P60,000/6,000 hrs
Variable cost per unit = P10 per hour

2. Fixed cost
TFC= TC-TVC
TVC= Highest working hrs x variable cost per unit
= 21,000 x P 10 =P 210,000
TVC= Lowest working hrs x variable cost per unit
=15,000 x P 10 =P 150,000
Work Hours Cost in Php TVC
Highest 21,000 P500,000 P210,000
Lowest 15,000 P 440,000 P150,000

Total Fixed Cost = Total Cost – Total Variable Cost

Highest
= P500,000-210,000
=P290,000

Lowest
=P440,000-150,000
=P290,000

3. Total Variable Costs = Work hours x variable cost per unit

= P23,000 x P10
= P 230,000