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Dear tutor.
Extract from the budgeted profit and loss statement for one period based on sales and production at a normal activity level.Selling overheads(note1) R50 000
Note1:
The behavior of selling overhead in relation to changes in sales volume (units)is as follows:
90% of 110% of
Normal activity Normal activity normal activity
Selling overheads R48 500. R50 000. R51 500The organization uses an absorption costing system to value inventory. For this purpose, the predetermined absorption rates are based on a normal level of capacity.Normal activity is 10000 units.
Solution to selling overheads
Selling variable costs= R1500/(10%*10000=1000)=R1,50 per unit sold
Budgeted fixed cost=R50000 -(10000*R1,50)=R35000.I don’t understand how they got R1500 and R50000,and the 10%.please help
Why have you headed up your post “Absorption versus marginal costing’? It has nothing to do with this and is a question on the High-Low method of dealing with semi-variable costs!!!
At 100% normal activity (10,000 units) the overheads are $50,000.
At 110% activity (11,000 units) the overheads are $51,500You then use the high/low method as normal, so the variable cost is (51,500 – 50,000) / (11,000 – 10,000) = $1.50 per unit.
The fixed cost is $50,000 – (10,000 units at $1.50) = $35,000
Have you watched the free lectures on this?
The lectures are a complete free course and cover everything needed to be able to pass Paper F2 well.
No the activity I was doing is under the absorption costing and marginal costing.I have watched the lectures sir.Still digesting the answer.
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