Question

Ans: Total costs Rs. 1.044,000 and Rs. 1.192.500 A company is running at 60% capacity and produced 8,400 units of output with the following c data: Direct material Direct wages Direct expenses Factory overhead (40% fixed). Office overhead (40% variable). Selling overhead (70% fixed). Required: Flexible budget for 50% and 75% capacity utilization. Indirect materials. Indirect labour cost Supervision Depreciation. Maintenance cost Items Ans: Total costs Rs. 610.400 and Rs. 816,200 Flexible Budget by Table Method, details of overhead cost of manufacturing company and o information have been provided. Items Required: Budgeted overhead cost for 7,000 and 8,000 units. The manufacturing cost of a company are detailed below: Items Material cost Labour cost. Depreciation Rent and rates Supervision cost Insurance costs, Required: Per unit costs (Rs.) Rs. 20 15 12 (b) (c) Outputs 5,000 units Rs. 5,000 10,000 15,000 20,000 10,000 10 10 6 10,000 units Rs. 10,000 20,000 20,000 20,000 15,000 Ans: Total cost = Rs. 70,000 and Rs. 75.000 Outputs 25,000 units Rs. 112,500 62,500 60,000 40,000 62,500 37,500 45,000 units Rs. 202,500 112,500 60,000 40.000 92.500 55,500 (a) Explain which items are variable, fixed and semi-variable and why? Separate the semi-variable cost into fixed and variable. Flexible budget by using formula BA = FC + bx LA and table method for 30,000 units, 36. units and 40,500 units as the levels of activity (LA). Ans: (c) Total costs: Rs 422,000: Rs. 478,400 and Rs. 520.70​

Answer 1

Determining Cost Types and Building Flexible Budgets

Based on the information provided, we can classify the costs into variable, fixed, and semi-variable categories:

Variable:

Direct material: Varies directly with production volume.

Direct wages: Varies directly with production volume.

Direct expenses: Varies directly with production volume.

Office overhead (60%): 60% of office overhead is variable with production volume.

Selling overhead (30%): 30% of selling overhead is variable with production volume.

Fixed:

Factory overhead (60%): 60% of factory overhead is fixed.

Office overhead (40%): 40% of office overhead is fixed.

Selling overhead (70%): 70% of selling overhead is fixed.

Rent and rates: Presumably fixed costs not directly related to production volume.

Semi-variable:

Indirect materials: May vary somewhat with production volume but not directly proportional.

Indirect labor cost: May vary somewhat with production volume but not directly proportional.

Supervision: May vary somewhat with production volume but not directly proportional.

Maintenance cost: Likely has both fixed and variable components.

Separating Semi-Variable Costs:

To use the formula BA = FC + bx LA, we need to separate the semi-variable costs into fixed and variable components. You can do this using one of the following methods:

High-Low Method: Analyze data at two different activity levels (high and low) to estimate the fixed and variable portions of the cost.

Engineering Approach: Analyze the cost components and identify the specific fixed and variable elements.

Regression Analysis: Use statistical regression to estimate the relationship between the cost and activity level.

Building Flexible Budgets:

Once you have classified and separated the semi-variable costs, you can use the following methods to build flexible budgets:

Formula Method: Use the formula BA = FC + bx LA, where:

BA is the budgeted cost at activity level LA.

FC is the fixed cost component.

b is the variable cost per unit of activity.

LA is the activity level.

Table Method: Create a table with columns for activity level, variable cost, fixed cost, and total cost for different production volumes.

Example:

Let's assume the following:

Activity levels: 30,000, 36,000, and 40,500 units.

Variable cost per unit for indirect materials: Rs. 2.

Fixed cost component for indirect materials: Rs. 5,000.

Using the table method, you would calculate the variable cost for each activity level (30,000 * 2 = Rs. 60,000, etc.) and add it to the fixed cost to get the total budgeted cost for each level.