a) Nate Company ltd wants to determine the cost-volume relation between its factory overhead cost and number of units produced. The volume and the corresponding total cost information of the factory for past eight months are given below:

Month

Units

FOH

1

1,520

$36,375

2

1,250

38,000

3

1,750

41,750

4

1,600

42,360

5

2,350

55,080

6

2,100

48,100

7

3,000

59,000

8

2,750

56,800

Required:

i) Use the high-low method to split its factory overhead (FOH) costs into fixed and variable components and create acost volume function(5 marks)

ii) Estimate the cost of producing 2,750 units of output(2 marks)

b) Basrif ltd produces a single product which is meant for local market only. The monthly demand for this product varies from one month to the other. During the month of of October 2019, 1000 units were produced incurring the following expenses:

Shs

'000'

Direct materials60

Direct labour80

Rent(Fixed)50

Electricity (40% fixed)54

Property taxes and rates (80% variable)100

Technical support(Fixed)56

400

i) Using accounts analysis formulate the total cost function

ii) During the month of November, Basrif ltd estimates to produce 1620 units. Calculate the estimated cost in December 2019.

iii) Discuss TWO weaknesses of the method you've used in part (i) and (ii) above