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thank you very much for your assistance.
Qt manufactures a single product and an extract from their flexed budget for production costs is a as follows.
at 80 percent At 90 percent
Direct material 2400 Direct material 2700
labour 2120 Direct Labour 2160
production overheads 4080 production overhead 4080Equals 8580 equals 8940
what would the total production cost allawance be if the budget is flexed at 83 percent level of activity.
Answer from the book is 8688
this is far I can go in this question
at 90 percent activity 2106+4080 equals 6240
at 80percent 2120+4060 equals 6180over a change of 10 percent 60
variable cost 60/10/100 equals 6
at 80 percent activity
fixed cost of labour and production 6180- 80*6 equals 5700
I am stuck there Can you please help me for the rest of the calculation Many thanks.
The total at 80% does not add up to $8,580 as you have typed, and so either you have copied a figure wrongly or there is a mistake in your book (if it is a question from the current edition of the BPP Revision Kit, then if you tell me which question I will check).
However, on the figures you have typed out, the answer is not $8,688 but is $
You have to look at each type of cost separately.
Direct materials are a variable cost and are $30 per 1% (2,400/80, and 2,700/90 are both $30).
Production overheads are obviously a fixed cost at $4,080 for both %’s.
Labour is semi-variable cost and so the variable cost is (2160 – 2120)/(90 – 80) = $4 per 1%, and the fixed cost is $1,800.
Therefore at 83%, the total cost is (83 x $30) + $4,080 + (83 x $4) + 1,800 = $8,702
This is obviously not the same as the answer in your book and is probably because you have typed out one of the figures wrongly in the question. If that is the case you should not have no problem repeating my workings using the correct figures 🙂
thank you very much. I have made a tying error for production overhead it is 4060 at 80 percent not 4080. and obliviously my addition is wrong on the basis of that. I will have a go at it again but its clear to me now. many thanks. I have not got the current exam kit my one covers from September 2019 to 31 August 2020.
this was the full question.
Qt Manufactures a single product and an extract for their flexed budget for production costs is as follows
AT 80 PER CENT.
DM 2400
DL 2120
Production overheads 4060.AT 90 PERCENT.
DM 2700
DL 2160
Production overheads 4080what would the total production cost allowance be in the budget flexed at 83 percent level of activity. to the nearest 1
and the full answer typed from the book was as follows.
at 90 percent activity 6240
at 80 percent activity 6180change 10 percent equals the difference of 6240-6180 equals 60
variable cost per 1 percent activity 60/10 percent equals 6
substituting in 80 percent activity
fixed cost of labour and production overhead equals 6180- 80*6 equals 5700
flexed cost budget allowance
Direct material 30*83 equals 2490
labour and production overheads
variable 6*83 equals 498
fixed 5700Giving a total of 8688
Refer to the above question why the change of 10% is only consider in vc and fc not in DM too?
Because by definition total fixed costs will not change with the level of production. Only the total variable cost will change.
Have you watched my free lectures on this? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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