[6] If during production the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of the following? a) Fixed cost per unit - INCREASE; Variable cost per unit - NO CHANGE b) Fixed cost per unit - INCREASE; Variable cost per unit - INCREASE c) Fixed cost per unit - NO CHANGE; Variable cost per unit - NO CHANGE d) Fixed cost per unit - NO CHANGE; Variable cost per unit - INCREASE 1 Mark [7] Which of the following would be the least appropriate allocation base to allocate overhead in a highly automated manufacturer of valves? a) Machine hours b) Power consumption c) Direct Labour hours d) Machine setups 1 Mark [8] Sacchi Plc.'s beginning and ending inventories for the month of January are as follows: January 1 January 31 Direct Materials 80,000 78,000 Work in Process 155,000 166,000 Finished Goods 90,000 88,000 Production data for the month are: Direct labour cost incurred Actual manufacturing overhead cost incurred Direct materials purchases 215,000 145,000 160,000 Sacchi Plc. applies manufacturing overhead cost to jobs at the rate of 70% of direct- labour cost incurred. This rate has been used for many years. The company does not close under- or over-applied manufacturing overhead to Cost of Goods Sold until the end of the year. The management accountant would now like to apply manufacturing overhead at a rate of 75% of direct labour. The director wants to know how this change would affect the company. Sacchi Plc.'s manufacturing overhead for January would be: a) Over-applied by 5,500 b) Under-applied by 5,500 c) Over-applied by 12,000 d) Under-applied by 12,000 3 Marks