Managerial Accounting

Hydropure Ltd commenced operations at the beginning of the current year. One of the companys products, an alkaline antioxidant water filter, sells for $299 per unit. Information related to the current years activities are as follows:

Hydropure Ltd carries its finished goods inventory at the average unit cost of production. There was no work in process at the year end.

Required: (a) Determine the cost of the year end finished goods inventory. (6 marks) (b) Calculate Hydropure Ltds net profit for the current year. Ignore taxation. (4 marks)

(c) If the next years production decreases to 24,000 units and the general cost behaviour patterns do not change, what is the likely effect on: (i) Direct labour cost of $74 per unit? Explain why. (5 marks) (ii) Fixed manufacturing overhead cost of $700,000? Explain why. (5 marks) (iii) Fixed selling and administrative cost of $880,000? Explain why. (5 marks) (iv) Average unit cost of production? Explain why. (5 marks)

40 Variable costs per unit: Direct materials Direct labour Manufacturing overhead Annual fixed costs: Manufacturing overhead Selling and administrative 96 700,000 880,000 Production and sales activity: Production (units) Sales (units) 25,000 20,000