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Hello Tutor,
In Pre-DEC 2023 Mock exam Q 19
What would the total production cost be for the new product if the company produces 110,000 litres of soup (to the nearest whole number)?
Sauce is also launching a new product. The annual costs of production have been estimated below:
Production (Litres)
85,000
$
100,000
$
125,000
$
Material costs
51,000
60,000
75,000
Labour costs
63,750
75,000
93,750
Fixed Costs (product specific)
450,000
550,000
550,000
One new production supervisor will need to be hired for each 50,000 liters of the new product produced, and a supervisor’s salary is $18,500 per year. This is not included in the fixed costs above.
Answer
CORRECT: 754,000Step 1: determine the variable cost per unit
(60,000 + 75,000) / 100,000 = 1.35 per unit
Step 2: calculate the total cost, using the fixed costs above the stepped cost, and including the cost of 3 supervisors:
550,000 + (135,000 * 110,000) + *3* 18,500) = 754,000
Here why the examiner did not use the high low method to get the variable-fixed cost and simply he used the 550000 as starting point ?
Thanks,
I think it’s
What would the total production cost be for the new product if the company produces 110,000 litres of soup (to the nearest whole number)?
Anything that’s variable take the 100,000 units cost so mat & lab so a var cost per unit
(60,000 + 75,000) / 100,000 = 1.35 per unitThen take the Fixed at 100,000 units of
550,000 add it to VC of (1.35 * 110,000) because this is the only variable element add it to + *3* 18,500 = 754,000
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