Question
Cost Behavior Analysis The case Al-Faisal Company wants to develop an estimate of its materials Storeroom costs. Alex Molly, the financial controller, has collected what
Cost Behavior Analysis
The case
Al-Faisal Company wants to develop an estimate of its materials Storeroom costs. Alex Molly, the financial controller, has collected what he believes to be the relevant data for the past 6 months. It is Mr. Mollys professional opinion that the storeroom costs should be closely related to the volume of the shipments received; thus, he has provided you with the following information:
5,000 shipments were received in January, with a total cost of $50 000, of which $20,000 are total variable costs and $30,000 are total fixed costs. The company uses the January shipments as the base level of activity to determine the variable and fixed cost components for the following changes in shipments activity:
February: Increase by 10%
March: Increase by 20%
April: Increase by 30%
May: Increase by 40%
June: Increase by 50%
Required task:
Q1: Using the linearity cost functions (cost behavior) principle, prepare a statement for the company management for January to June activities by showing the breakdown of storeroom costs (fixed costs (total and unit) and variable costs (total and unit). (4 marks)
Q2: Write down the equation that can represent the total mixed costs with the definition of each variable. (0.5 mark + 0.5 mark = 1 mark)
Write your answers below:
Cost Behavior Analysis
The case
Al-Faisal Company wants to develop an estimate of its materials Storeroom costs. Alex Molly, the financial controller, has collected what he believes to be the relevant data for the past 6 months. It is Mr. Mollys professional opinion that the storeroom costs should be closely related to the volume of the shipments received; thus, he has provided you with the following information:
5,000 shipments were received in January, with a total cost of $50 000, of which $20,000 are total variable costs and $30,000 are total fixed costs. The company uses the January shipments as the base level of activity to determine the variable and fixed cost components for the following changes in shipments activity:
February: Increase by 10%
March: Increase by 20%
April: Increase by 30%
May: Increase by 40%
June: Increase by 50%
| units | total cost | total variable costs | total fixed costs | |
| base: january | 5,000 | $ 50,000.00 | $20,000 | $30,000 |
| February (10%) | 5500 | $ 55,000.00 | ||
| March (20%) | 6000 | $ 60,000.00 | ||
| April (30%) | 6500 | $ 65,000.00 | ||
| May (40%) | 7000 | $ 70,000.00 | ||
| June (50%) | 7500 | $ 75,000.00 |
Required task:
Q1: Using the linearity cost functions (cost behavior) principle, prepare a statement for the company management for January to June activities by showing the breakdown of storeroom costs (fixed costs (total and unit) and variable costs (total and unit). (4 marks)
Q2: Write down the equation that can represent the total mixed costs with the definition of each variable. (0.5 mark + 0.5 mark = 1 mark)
Write your answers below:
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Financial Accounting An Introduction to Concepts, Methods and Uses
Authors: Roman L. Weil, Katherine Schipper, Jennifer Francis
14th edition
978-1111823450, 1-133-36617-1 , 1111823456, 978-1-133-3661, 978-1133591023
