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QT Co manufactures a single product and an extract from their flexed budget for production costs is as follows.
Direct Material (Activity level 80% $2400) ( Activity level 90% $2700)
Labour (Activity level 80% $2120) (Activity level 90% $2160)
Production overhead (Activity level 80% $4060) (Activity level 90% $4080)
Total (Activity level 80% $ 8580 ) (Activity level 90% $8940)
What would the total production cost allowance be in a budget flexed at the 83% level of activity? (to the nearest $)
Ans) 8688 Sir please can you explain this questionThe material cost is a variable cost and so the cost per % is $30 (2,400/80 or 2700/90).
The labour cost is semi-variable and so using the high/low method, the variable cost is (2160 – 2120)/(90-80) = $4 per % and the fixed cost is $1800.
The production overhead is also semi-variable and so again using the high/low method, the variable cost is (4080 – 4060) / (90 – 80) = $2 per % and the fixed cost is $3900.So at the 83% level, the total variable cost is 83 x (30 + 4 + 2) = $2,988, and the fixed cost is 1800 + 3900 = $5,700.
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