Question

E20-1 Bonita Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production: Costs Incurred Production 5,000 Units 110,000 Units Direct materials $ 8,000 $16,000 Direct labour 9,500 19,000 Utilities tud 2,000 3,300 Rent 4,000 4,000 Maintenance 800 1,400 Supervisory salaries 1,000 1,000 Total cost $25,300 $44,700 Instructions (a) Define these terms: variable costs, fixed costs, and mixed costs. (b) Classify each production cost listed as variable, fixed, or mixed. (c) Calculate the expected production costs if 9,000 units are produced.

Do instructions part a), b), & c)

Answer 1

a) Variable Cost : Variable is a cost which is constant per unit. Fixed cost : Fixed cost is cost which is constant irrespect of change in volume. Mixed cost : Mixed cost is a cost which contains both fixed and variable cost. b) Particulars Classification Variable cost p.uFixed cost Direct material Variable cost 1.6 Direct Labour Variable cost 1.9 Utilities Mixed cost 0.26 700 Rent Fixed cost 4000 Maintence Variable cost 0.16 Supervisory salaries Fixed cost 1000 Utilities variable cost = ( 3300-2000)/(10000 - 5000 ) =0.26. Fixed cost = 3300 - 10000 * 0.26 = $ 700 Calculating production cost at units 9000 Particulars Amount Direct material 14400 Direct Labour 17100 Utilities 3040 Rent 4000 Maintence 1440 Supervisory salaries 10000 Total Cost 40980