Based on the table it can be seen that the direct material, direct labour and indirect material come under the pure variable cost. Supervisors’ salaries, depreciation on plant, insurance on plant and equipment and property taxes on plant comes under pure fixed cost. Maintenance and utilities comes under mixed cost (Pagare 2020). The total variable cost for 8000 units amounted to $168000 and for 12000 units amounted to $252000. The total fixed cost for 8000 units amounted to $25600 and for 12000 units amounted to $25600. The total mixed cost for 8000 units amounted to $240600 and for 12000 units amounted to 342600.

ANSWER TO QUESTION 2

In cost accounting the high-low method is used for separating the fixed and variable cost based on the limited amount of data. This is calculated by taking the highest level of activity and the lowest level of activity and then comparing the total cost at each level. Based on high-low method the total mixed cost has been divided into fixed and variable elements. Based on the calculation the equation has been derived as:

Y = 36600+25.5X

ANSWER TO QUESTION 3

A cost equation is used by a company in order to determine the expenses that are associated with the sales and production based on certain amount of goods. In order to find cost equation the company should firstly determine the amount of expenses. It should also determine the fixed cost associated with production (Adilli 2020). The cost equation is based on the cost of manufacturing and selling one item multiplied by the number of items sold and then it is added to the fixed cost of the company. The main objective of deriving the cost equation is to find the amount of sales that will cost the company. This will help the company to determine the price that it must charge for certain items in order to achieve break even. The cost equation is also used to make a profit equation. By the help of profit equation the company determines the amount of profit that it will make on the sales volume (Horngren, Datar and Rajan 2015).

Based on the cost equation derived that is Y = 36600+25.5X the total cost can be calculated. The total cost of 9000 unit can be calculated by multiplying the variable cost unit with the production volume of 9000 units and then adding that with the fixed cost. The total cost derived is $266100.

ANSWER TO QUESTION 4

As shown in part 3 the total cost for 9000 units is $26610 but based on the accountant calculation the total cost derived in $336600. Therefore, based on the calculation the accountant has overstated the cost by $70500 which is higher by 26% and for that reason there was gross loss in the year. Another reason for loss is that the accountant has not separated the fixed and variable cost properly.

CASE STUDY 2

ANSWER TO QUESTION 1

By using the single plant wide factory overhead rate method the overhead recovery rate for the Fridge, Dishwasher and Washing machine has been calculated. The overhead recovery rate is 8 per labour hour.

ANSWER TO QUESTION 2

The total unit cost of Fridge, Dishwasher and Washing machine has been calculated. The total cost of Fridge is $820, Dishwasher is $540 and Washing machine is $674.

ANSWER TO QUESTION 3

Using activity based costing system factory overhead cost and total cost of production per unit for Fridge, Dishwasher and Washing machines has been calculated. The overhead per unit for Fridge is 69.875, for Dishwasher is 265.925 and for Washing machines are 3.633. The total cost of production for Fridge is $869.875, Dishwasher is $765.925 and Washing machine is $653.633.

ANSWER TO QUESTION 4

As compared to single plant wide factory overhead, activity based costing method is best for the allocation of factory overheads. Activity based costing system uses various cost drivers for the allocation of overheads and separate rate is calculated for each activity (Geiszler, Baker and Lippitt 2017). In ABC method allocation of overhead is done on the basis of services used or taken by the product of an activity. ABC gives more accurate results as they provide precise breakdown down of indirect costs (Siguenza-Guzman 2016). Therefore, activity based costing system provides more accurate product costing by using various cost drivers and this method is best (Chouhan, Soral and Chandra 2017).

ANSWER TO QUESTION 5

Fridge and Dishwashers are the basic needs of human being and it is required daily. As a result the demand is high as compared to washing machine. Due to high demand Fridge and Dishwasher are selling fast and the washing machines are not selling at the existing prices. The profit is also high for dishwasher and fridge as compared to washing machines.

Reference

Adilli, A., 2020. The Flexible Budget as a Development Tool: Evidence From the Personal Preparation Course. Available at SSRN 3539720.

Chouhan, V., Soral, G. and Chandra, B., 2017. Activity based costing model for inventory valuation. Management Science Letters, 7(3), pp.135-144.

Geiszler, M., Baker, K. and Lippitt, J., 2017. Variable Activity‐Based Costing and Decision Making. Journal of Corporate Accounting & Finance, 28(5), pp.45-52.

Horngren, C.T., Datar, S.M. and Rajan, M.V., 2015. Cost accounting: A managerial emphasis.

Pagare, S., 2020. Classification of cost.

Siguenza-Guzman, L., Auquilla, A., Van den Abbeele, A. and Cattrysse, D., 2016. Using Time-Driven Activity-Based Costing to identify best practices in academic libraries. The Journal of Academic Librarianship, 42(3), pp.232-246.