OVERHEADS COSTING

Question 1

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Question 2

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Question 3

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Question 4 (1)

21250 2750 375 625

13500 6300

141000 37650 7555 14495

9213 4299 983 (14495)

150313 41949 8538

7560 978 (8538)

157873 42927

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Question 5 (2):

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16020 8010 2670 (26700)
291020 111210 21870 -

16403 5467 (21870)

307423 116677

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Question 6 (3)

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Question 7.

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 Type 2: Break Even point
Question 1:

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Question 2

Additional Information

At one factory a single product is made.

The following budgeted details are available Direct materials per unit 3kg at $5 per kg
Direct labour per unit 2 hours at $9.50 per hour
Fixed costs per month $66000
Selling price per unit $48
Sales 8000 units per month

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Additional information
The directors are concerned that there could be a fall in demand for this product. They plan to
make some changes to reduce the product’s break‑even point and encourage sales.
1 Use a different grade of material. The list price of this material is 10% less per kilogram than
the existing material.
2 Each unit will require 5% more kilograms of this material.
3 The supplier of materials has agreed to give a 20% trade discount.
4 Make alterations to machinery to improve efficiency at a cost of $24000. Machinery is
depreciated at 25% per annum.
5 Introduce a sales commission of $0.50 per unit.
6 Reduce the selling price by 1.5% per unit.

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Additional information
At the other factory monthly production and sales are normally 14000 units of a different product.
This product has a variable cost of $65 per unit and a contribution of $17 per unit. The budgeted
factory fixed costs are $128000 per month.
A major customer normally purchases 5500 units per month. However, the company has been
informed that no units will be required by this customer in August 2022.
The directors are considering two options.

Option A
1 Reduce production in August 2022 by 4000 units.
2 Run an advertising campaign at a cost of $2200 to increase demand so that all production is
sold.

Option B
1 Continue with normal production in August.
2 Store 5500 units in a warehouse at a cost of $6000.
3 At the end of August an overseas customer will purchase all the units in the warehouse at a
special price of $70 per unit. Transport costs of $1.80 per unit will be incurred on these units.

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 KEY

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Question 3

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Question 4
Brady manufactures one product which is sold through agents who receive a 10% commission
based on the selling price.
The following budgeted information is available for December 2022.
$
Sales revenue (12000 units) 78000
Direct materials 21600
Direct labour 14400
Variable production overheads 4800
Fixed production overheads 9200
Fixed administrative overheads 6100
Selling expenses including sales commission 13200
All selling expenses with the exception of sales commission are fixed.

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Additional information
Brady has a monthly target profit of $10800.

Additional information
Brady is aware that he needs to make changes in order to achieve his monthly target profit and
he is proposing the following:
1 Improve the specification of the product and increase the selling price by $0.30 per unit.
2 The new materials will increase the direct material price by $0.40 per unit.
3 Reduce the direct labour rate by 5% per unit.
4 Reduce the sales commission to 8%.
5 Reduce the administrative overheads by $18000 per annum by making one member of staff
redundant.
6 Increase the advertising budget by $2500 per month.
Brady is confident that these measures will produce additional sales of 1000 units each month.

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Question 5:

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Question 6:

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Question 7:

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 MARGINAL COSTING WITH LIMITING FACTOR
Question 1

Note: Contribution per $ 1 of material = Contribution per unit

Material cost per unit

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Question2

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 KEY

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Question 3:

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Question 4

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Question 5

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