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:

1. Identify and make separate lists of the pure variable costs, pure fixed costs and mixed costs and calculate their totals.
2. 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?
3. 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.
4. In 2019 the company has produced 9 000 units. According to the Accountant's 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.