Company Alpha has a contract with a delivery firm for delivering its products to their clients. The information regarding the monthly delivery costs for the second semester is available below:

Month

Units delivered

Delivery cost

July

180

$590

August

300

$950

September

250

$820

October

200

$640

November

230

$700

December

270

$870

Total

1,430

$4,570

Required:

(a)Use the high-low method for estimating the cost function for monthly delivery costs for Company Alpha. (4 marks)

ANSWERE HERE

(b)After reviewing the estimated cost function using the high-low method, the accountant at Company Alpha has noted that the estimated expenses do not exactly match the actual expenses for all months in the table above. Why is this happening? (4 marks)

ANSWERE HERE

Part II

The accountant at Company Alpha is having some trouble crunching the numbers and has asked for help with the cost items listed below.

Cost item

Value

Rent of office

$40,000

Office manager salary

$80,000

Marketing costs

$15,000

Invoicing system

$750

Rent of warehouse

$30,000

Warehouse supervisor salary

$70,000

Direct material

$40,000

Direct manufacturing labour

$15,000

Required:

(a)Complete the table below classifying all the costs items listed above between (i) fixed or variable, (ii) direct or indirect, and (iii) product cost or period cost. (5 marks)

Cost item

Fixed/variable

Direct/indirect

Product/Period

Rent of office

Office manager salary

Marketing costs

Invoicing system

Rent of warehouse

Warehouse supervisor salary

Direct material

Direct manufacturing labour

(b)Considering that Company Alpha only produces one good and that 1,000 units of this good was sold, calculate the total product cost and unit average product cost. (3 marks)

ANSWERE HERE