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please help this question below QT Co manufactures a single product and an extract from their flexed budget for production costs is as follows. Activity level 80% of direct material $2400 labour $2120 and production $4060. Activity level 90% of direct material $2700 labour $2160 and production $4080. what would the total production cost allowance be in abudget flexed at the 83% level of activity? (to the nearest $)
Materials are obviously a variable cost because 2,400 / 80% = 3,000, and 2,700 / 90% = 3,000 as well. So at the 83% level of activity the materials cost is 3,000 x 83% = 2,490.
This doesn’t work in the same way for labour and for overheads, so they must be semi-variable and for them you need to use the high low method.
For labour, the variable cost per % is (2160 – 2120) / 90 – 80 = $4, and the fixed cost is 2120 – (80 x 4) = 1800.
Do at the 83% level of activity the labour cost is 1800 + (83 x 4) = 2132.It is the same approach for overheads.
I assume that you have watched my free lectures on the high/low method? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
the book does work labour and production to use high low method but
not direct material. direct material cost per 1%=30 . why?I understood this question b/c of I compared how answered U and book answered and do more try . thanks U john moffat
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