Question
Bendix Ltd is a car parts manufacturer. It supplies you the following information regarding costs at various levels of monthly production: Production volume 8 000
Bendix Ltd is a car parts manufacturer. It supplies you the following information regarding costs at various levels of monthly production:
Production volume | 8 000 units | 12 000 units |
Direct materials | $80 000 | $120 000 |
Direct labour | 64 000 | 96 000 |
Indirect materials | 24 000 | 36 000 |
Supervisors salaries | 12 000 | 12 000 |
Depreciation on plant | 10 000 | 10 000 |
Maintenance | 32 000 | 44 000 |
Utilities | 15 000 | 21 000 |
Insurance on plant and equipment | 1 600 | 1 600 |
Property taxes on plant | 2 000 | 2 000 |
Total | $241 600 | $342 600 |
In the above table there are some pure variable costs, some pure fixed costs and some mixed costs.
Required:
- Identify and make separate lists of the pure variable costs, pure fixed costs and mixed costs and calculate their totals.
- Split the total mixed costs into Fixed and Variable elements using High/Low method, calculate total fixed cost and develop the equation for total monthly production costs?
- Explain to the management how to use the cost equation you developed in (2) above to predict total costs for the monthly production volume of 9 000 units and also calculate the correct unit cost.
- In 2019 the company has produced 9 000 units. According to the Accountants calculations the unit cost was $28.05 ($336 600 / 12 000). The company added 10% margin to the cost and had set a selling price of $30.85.
However, the financial results show that there was a gross loss in the year. The company management cannot understand this mystery.
Explain to the management why there was a loss.
Could you present exactly 4 answers according to the 4 questions above?
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