Below is the production cost for DBS Ltd for the six months ended 30 November, 2022:

Month

Units

Cost (GH)

June

340

2,260

July

300

2,160

August

380

2,320

September

420

2,400

October

400

2,300

November

360

2,266

Required

i. Separate the production costs into fixed and variable components using the high-low method

ii. Write the cost function of the Company in the equation form Y = a + bX.

iii. Using the cost function, find the cost of producing 900 units of the product. iv. Outline the advantages of the method you have used.

v. What is the potential weakness in using this approach to estimate costs? vi. Advise DBS on any other method that could be used to give a more accurate information

for management decision making.

Question 7

Peter Asante Ltd. manufactures and sells a single product. Current year sales volume is 60,000 units and sells at a price of $75.00 per unit. The prime costs amount to $25.00 per unit. Variable manufacturing overhead costs are 10.00 per unit and fixed manufacturing overhead costs are $420,000.00 per year. There are no beginning inventories and 70,000 units are produced during the year. Variable selling, general and administrative expenses are &5 per unit sold plus fixed A Asselling and administrative expenses of $600,000 per year. As the management accountant of the Company, you are required to:

Calculate the product cost per unit under the absorption and variable costing methods ii. Prepare the income statement for Peter Asante Ltd for the year under the absorption and

variable costing methods showing the operating profits for the year in. Explain why there is a difference between the profits under absorption costing and

variable costing methods.

iv. Advise the Company on the costing technique to be used.

v. Justify the answer given in (iv) above.