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could you please explain how to attempt the following question, the answer for it is D
15.3 QT Co manufactures a single product and an extract from their flexed budget for production costs is as follows.
Activity level 80% 90%
$ $
Direct material 2,400 2,700
Labour 2,120 2,160
Production overhead 4,060 4,080
total cost 8,580 8,940
What would the total production cost allowance be in a budget flexed at the 83% level of activity? (to the nearest $)
A $6,266
B $6,888
C $8,586
D $8,688Materials 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.
Sir, I am confused about a number in bpp.
A company manufactures a single product, M. Budgeted production output of product M during August is 200 units. Each unit of product M requires 6 labour hours for completion and PR Co anticipates 20 per cent idle time. Labour is paid at a rate of 7% per hour. What is the the direct labour cost budget for August?
A) $6720
B) $8400
C) $10080
D) $10500Answer
Active hrs required for pdtn (200*6 hrs) =1200
Allowance for idle time( 20%=25%). = 300
————
Total hours to be paid for. 1500
*$7 per hour.
Direct lbr cost budget. $10500Sir I would like to know how the idle time of 20 percent changes to 25 percent of active hrs worked.
For every 100 hours that they pay for, 20% (so 20 hours) are idle and therefore only 80 hours are available for work.
Or, putting it the other way round, for every 80 hours of work they need to pay for 100 hours.
So to get 1,200 hours of work, they need to pay for 100/80 x 1,200 = 1,500 hours
(And it checks. If they pay for 1,500 hours, then 20% x 1,500 = 300 hours will be idle, and therefore there are 1,200 hours available for work.)
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