PAF – Karachi Institute of Economics and Technology City Campus

Course: F5
Faculty: Miss Urooj Istaqlal Date: 27th Jan 2021
Name: Class ID: 106562 Assignment # 3

Name:
Muhammad Adil

Student Id:
63727
EXAMPLE NO. 6.1:

SOLUTION:

PART A:
Fixed costs
$ Per annum
Depreciation $(12,000-6000)/2 3,000
Routine maintenance $(200 + 450) / 2 325
Tax, insurance etc. 400
3,725

PART B:
Variable costs

Cents per mile

Petrol and oil 15.0
Repairs ($400 ÷ 50,000 miles)* 0.8
15.8

PART C:
Step costs are tyre replacement costs, which are $300 at the end of every 30,000 miles.

(i) If the car travels less than or exactly 30,000 miles in two years, the tyres will not be changed.
Average cost of tyres per annum = $0.

(ii) If a car travels more than 30,000 miles and up to (and including) 60,000 miles in two years,
there will be one change of tyres in the period. Average cost of tyres per annum = $150
($300 2).

(iii) If a car exceeds 60,000 miles in two years (up to 90,000 miles) there will be two type
changes. Average cost of tyres per annum = $300 ($600 ÷ 2).

The estimated costs per annum of cars travelling 15,000 miles per annum and 30,000 miles per
annum would therefore be as follows.

15,000 miles 30,000 miles

 Per annum Per annum
$ $
Fixed costs 3,725 3,725
Variable costs (15.8c per mile) 2,370 4,740
Tyres – 150
Cost per annum 6,095 8,615

EXAMPLE: 5.4

SOLUTION:

PART A:
Intercept = a = 1ie (0, 1)

Slope = b =1
10

PART B:
4y = 16x 12

Equation must be in the form y = a + bx

y = x = –3 + 4x
Intercept = a = 3 I, e (0, 3)
Slope = 4

EXAMPLE: 4.2

SOLUTION
x = number of items sold
y = weekly wage
a = $100
b = $5
y = 5x + 100
EXAMPLE: 3.5

SOLUTION:
Estimated overheads to clean 14,500 square meters.

Per square metre

$
Variable cost 2.10
Additional variable cost 1.00
Total variable cost 3.10

Cost for 14,500 square meters:

$
Fixed 51,875
Variable costs (14,500 $3.10) 44,950
96,825

EXAMPLE: 3.3

SOLUTION:

Period with highest activity = 20X2

Period with lowest activity = 20X3

Total cost at high activity level = 170,000

Total cost at low activity level = 140,000
Total units at high activity level = 90,000
Total units at low activity level = 60,000

Variable cost per unit

= total units at high activity level _ total units at low activity level
Total cost at high activity level - total cost at low activity level
= 170,000 – 140,000
90,000 – 60,000
= 30,000
30,000
= $1 per unit

Fixed costs = (total cost at high activity level) – (total units at high activity level × variable cost
per unit)
= 170,000 – (90,000 × 1) = 170,000 – 90,000 = $80,000
Therefore the costs in 20X5 for output of 85,000 units are as follows.
$
Variable cost = 85,000 × $1 85,000
Fixed costs 80,000
165,000

EXAMPLE: 3.4

SOLUTION:

Total cost for 15,100 without step up in fixed costs = $83,585 – $4,700 = $78,885

We can now proceed in the normal way using the revised cost above
Units $
High output 15,100 Total cost 78,885
Low output 12,750 Total cost 73,950
2,350 4,935
Variable cost = 2,350
4,935
= $2.10 per square metre
Total cost (15,100 square meters) (this includes the step up in fixed costs) 83,585
Total variable costs (15,100 $2.10) 31,710
Total fixed costs 51,875
Estimated overhead expenditure if 14,500 square meters are to be industrially cleaned:
$
Fixed costs 51,875
Variable costs (14,500 $2.10) 30,450
82,325