ANSWER THE FOLLOWING

1. The following information relates to the manufacture of batches of microwave containers during the
month of September 2005.

Direct materials per batch $ 220.80

Direct labour per batch $ 386.40
Total variable overheads $ 89,900
Total fixed overheads $ 130,200
Number of batches produced 620

Calculate the cost per batch of microwave containers under:

(a) Variable (marginal) costing (b) Full absorption costing

2. Wrap well Ltd has produced three forecasts of activity levels for the next three months for its type M
chilled food container. The original budget involved producing 10,000 units, but sales are increasing, and it
looks as if production levels of between 12,000 and 14,000 units are now more likely.

(a) Complete the table below in order to estimate the production cost per unit of the type M chilled food
container at the different activity levels.

(b) If the production volume for this product were to increase to 50,000 units per three-month period,
explain what the likely effect would be on the fixed costs and cost per unit.
ADDITIONAL DATA

The following budgeted annual sales and cost information relates to chilled food container types N and P.

Complete the table below (to two decimal places) to show the budgeted contribution per unit of N and P
sold, and the company’s budgeted profit or loss for the year from these two products.

ADDITIONAL DATA

The $ 95,600 of fixed costs for products N and P has now been split between the two products as follows: $
51,600 to N and $ 44,000 to P.

The latest sales forecast is for 160,000 units of product N and 240,000 units of product P to be sold during
the year.

Complete the table below so as to calculate:

• the budgeted break-even sales, in units, for each of the two products
• the margin of safety (in units) for each of the two products
• the margin of safety as a percentage (to two decimal places).
3. The following information relates to the manufacture of batches of cheese pies during the month of May
2006:

Direct materials per batch $ 316.80

Direct labour per batch $ 412.50
Total variable overheads $ 197,800
Total fixed overheads $ 278,300
Number of batches produced 230

Calculate the cost per batch under:

(a) Variable (marginal) costing (b) Full absorption costing

4. The company has produced three forecasts of activity levels for the next three months for its TV dinners
range. The original budget involved producing 5,000 batches but, due to an increase in demand, production
levels of between 6,000 and 7,000 batches now seem likely.

Complete the table below to estimate the profit per batch (to three decimal places) of the TV dinners range
at the different activity levels.
Calculate:

• the budgeted break-even volume, in number of batches (rounded up to the nearest whole batch) and
sales revenue, for the TV dinners range

• the margin of safety, in number of batches and sales revenue, for the TWO forecast activity levels shown
below

• the margin of safety, as a percentage (to two decimal places), for the TWO forecast activity levels shown
below.
MARKING SCHEME

(b) The table above assumes that the existing fixed costs remain the same when activity levels increase by
20% or by 40%. Therefore, these costs are spread over a bigger volume and the effect of this is to decrease
the cost per unit of the product. If, however, the production volume was to increase to 50,000 units, then
the fixed costs would almost certainly change as more indirect labour and fixed overheads would need to be
added so as to cope with this large increase in volume. The existing fixed overheads are only ‘fixed’ over a
limited range and the company’s ability to reduce the cost per unit by increasing volume is also, therefore,
limited to this range.