AA025 Chapter 3 tutor questions_Nor Ismah Isa

CHAPTER 3: COST BEHAVIOR

QUESTION 1

M Company manufactures and sells souvenir products. Monthly income statements for two
activity levels are provided below:

Product 1 Product 2
Number of units 20,000 unit 30,000 unit
RM RM
Revenue 150,000 225,000
Cost of goods sold 60,000 90,000
Gross margin 90,000 135,000
Salaries and commissions 20,000 25,000
Advertising expenses 30,000 30,000
Administrative expenses 12,500 12,500
Total operating expenses 62,500 67,500
Operating Income 27,500 67,500

REQUIRED:
a) Identify the variables costs, fixed cost and mixed costs.
b) Use the high-low method to separate the mixed costs into variable and fixed
components.
c) Develop a formula to express the cost behavior of M Company.
d) Determine the total costs if the company produces 10,000 and 40,000 unit souvenir.

QUESTION 2

Herb Natural Solution manufactures and sells energy drinks. The drinks are sold for RM3.20
a bottle to the distributor. The company estimates costs will be as follows when producing at
a volume level of 100,000 units and 80,000 units:

Units activity 100,000 80,000

RM RM
Ingredients used to make the drink 36,000 28,800
Bottles 16,000 12,800
Labor working to manufacture the drink 12,000 9,600
Rent for the manufacturing plant 7,500 7,500
Utilities at the manufacturing plant 2,800 2,600
Management salaries 18,000 18,000
Other administrative expenses, each month 29,000 29,000
Costs to ship the product to customers 5,300 4,700
Supervisors at the manufacturing plant 6,000 6,000
Sales commission expense 15,000 12,000
General business insurance 600 600
Advertising expense, paid monthly 1,000 1,000
Total 149,200 132,600

REQUIRED:
a) Determine the total cost to produce 120,000 bottles of drink.
b) Determine the costs of Ingredients used to make the drink and Labor working to
manufacture the drink if the company produces 110,000 bottles of drink.
c) Calculate the variable cost per unit and fixed cost of :
i) Manufacturing plant utilities
ii) Shipping cost.
 AA025 Chapter 3 tutor questions_Nor Ismah Isa

QUESTION 3

a) Estes Silver Resources accumulated the following production and overhead cost data
for the past five months.

Production (units) Overhead Cost

(RM)
January 10,600 40,250
February 10,500 40,000
March 11,500 44,250
April 12,500 45,500
May 11,000 43,750

The Overhead costs consist as the following specific costs that stated in the following
table. Indirect raw material cost and overtime costs are charged as variable cost while
other manufacturing cost is fixed cost. Maintenance costs are mixed costs. The
following table show the specific cost for manufacturing overhead cost that involve on
February 2017.

RM
Indirect raw material 9,450
Overtime cost 11,550
Maintenance costs 11,000
Other manufacturing cost 8,000
Total overhead costs on February 2017 40,000

REQUIRED:

a) Use the high/low method to calculate the variable cost per unit and fixed costs for
Estes Silver.
b) What are estimated overhead costs for production of 12,000 units?
c) Calculate each of the specific cost for the production of 12,000 units.