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Hello Tutor,
Why in the mock exam answer for q 19 about calculating of the full cost when the quantity 110000 litres
the model answer used the specific fixed cost without differentiating between variable and fixed
why is that .They just used 550000 as the other quantities of 100,000 and 125000 litres,
Thanks,
I have had a look at no 19; it is a payoff table question on Stow Hotel
Can you let me have the exact question, please?I cannot appear to find the question
Could you include it for me please if you want my helpHi,
This is the question
Thanks
Scenario 1
This scenario relates to five questions
Sauce Co manufactures and sells cartons of cooking sauces. The finance director would like to forecast sales, including the impact of seasonal variation.
Data has been gathered and the following centered moving averages have been calculated, using a base period of 4 quarters. The seasonal variations are 0·904 for quarter 3 and 1·079 for quarter 4. The random component is negligible and can therefore be ignored.
YEAR Quarter 1 Quarter 2 Quarter 3 Quarter 4
‘000 Units ‘000 Units ‘000 Units ‘000 Units20×2 1,086.75 1,112.5 1,162.5 1,206.25
20×3 1,243.75 1,287.5
Sauce is also launching a new product. The annual costs of production have been estimated below:
Production (Litres) 85,000 100,000 125,000
$ $ $
Material costs 51,000 60,000 75,000
Labour costs 63,750 75,000 93,750
Fixed Costs (product specific) 450,000 550,000 550,000
One new production supervisor will need to be hired for each 50,000 liters of the new product produced, and a supervisor’s salary is $18,500 per year. This is not included in the fixed costs above.
Question 19
What would the total production cost be for the new product if the company produces 110,000 litres of soup (to the nearest whole number)?I have looked back and you asked me this in December
It’s not high/low method!!!!!!!! They are specific fixed costs……
What would the total production cost be for the new product if the company produces 110,000 litres of soup (to the nearest whole number)?
Anything that’s variable take the 100,000 units cost so mat & lab so a var cost per unit
(60,000 + 75,000) / 100,000 = 1.35 per unitThen take the Fixed at 100,000 units of
550,000 add it to VC of (1.35 * 110,000) because this is the only variable element add it to + *3* 18,500 = 754,000
Hi
So when they tell that the fixed cost is specific
we don’t have to say that it contains a variable o/h ?
And when we should assume that it contains a variable o/h so that we should use high low method??
Thanks for clarification.
It will say in the question or information in the question will indicate high/low
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