accounts pb.docx - CASE 2 TASK 1 1 Definition of variable...

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CASE 2 TASK 1 1. Definition of variable cost, fixed cost and mixed cost Cost Behavioura l Variable Cost Fixed Cost Mixed Cost Total cost -The amount of total cost varies accordingly to the changes in the level of activity -The amount of total cost is fixed despite changes in activity -Mixed cost has both behavioural of fixed cost and variable cost -Total mixed cost varies but not accordingly direct to the changes in the level of activity Cost per unit -Variable cost per unit is fixed -Fixed cost per unit will decrease with increasing level of activity and vice versa - Example -Direct labour cost -Direct material cost -Factory rent -Insurance -Factory utility cost -Factory maintenance Graph Cost (RM) Total variable cost Activity(unit) Cost (RM) Variable cost per unit Activity(unit) Cost (RM) Total fixed cost Activity(unit) Cost (RM) Fixed cost per unit Activity (unit) Cost (RM) Total Mixed cost Fixed cost Activity(unit)
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2. Classification of production costs to either variable cost, fixed costs, or mixed costs Production in units 5 000 10 000 COST BEHAVIOURAL Production Costs Total Costs (RM) Cost per unit (RM) Total Costs (RM) Cost per unit (RM) Direct materials Direct labour Utilities Rent Maintenance Supervisory salaries 8 000 9 500 2 000 4 000 800 1 000 1.60 1.90 0.40 0.80 0.16 0.20 16 000 19 000 3 300 4 000 1 400 1 000 1.60 1.90 0.33 0.40 0.14 0.10 Variable Cost Variable Cost Mixed Cost Fixed Cost Mixed Cost Fixed Cost 3. Analysing the costs and calculating total variable costs and total fixed costs Production Costs Variable cost per unit Fixed costs Direct Material RM 16 000 10 000 units = RM 1.60 - Direct Labour RM 19 000 10 000 units = RM 1.90 - Utilities RM 3 300 – RM 2 000 10 000 units – 5 000 units = RM 0.26 RM 3 300 – (RM 0.26) (10 000) = RM 700 Rent - RM 4000 Maintenance RM 1 400 – RM 800 10 000 units – 5 000 units = RM 0.12 RM 1 400 – (RM 0.12) (10 000) = RM 200 Supervisory salaries - RM 1 000 TOTAL COST RM 3.88 RM 5 900 4. Cost function for Gopeng Factory
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Y = a +bx Y = RM 5 900 + RM 3.88x 5. Recommending selling price Let x = 3 000 units (Minimum production) Let x = 15 000 (Maximum production) Y = RM 5 900 + RM 3.88x Y = RM 5 900 + RM 3.88x Y = RM 5 900 + RM 3.88 (3 000) Y = RM 5 900 + RM 3.88 (15 000) Y = RM 17 540 Y = RM 64 100 Cost per unit = RM 17 540 Cost per unit = RM 64 100 3 000 units 15 000 units = RM 5.85 = RM 4.27 MARK UP 100% SELLING PRICE = RM 5.85 x 200% = RM 11.70 6. Calculating break-even point(BEP). Sales = Variable Cost + Fixed RM 11.70x = RM 3.88x + RM 5 900 Cost / revenue (RM) PROFIT RM 7.82x = RM 5 900 Total Revenue x = 754.48 units Total Cost Break-even point (units) = 755 units 8 833.50 Break-even point (RM) = BEP(units) x selling price Fixed cost = 755 units x RM 11.70 = RM 8 833.50 0 units of sales (units) LOSS 755 units of product should be sold to get RM 8 833.50 that can break even when there is no profit or loss occurred.
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