Question
Amal (the cost accountant) in Dream Company asked the financial accounting department to provide cost information for the production department for the month of May
Amal (the cost accountant) in Dream Company asked the financial accounting department to provide cost information for the production department for the month of May (June information is not yet available). Because the financial accounting department tracks information by department, it is able to produce this information. The production department information for May is as follows:
Unit produced and sold | 6000 | |
Material used in production | $240,000 | |
Labor (assembly and supervisors) | $180,000 | |
Facilities costs (rent, utilities, insurance….etc) | $60,000 | |
Total production cost | $480,000 |
Amal reviewed this cost information with the production manager, Ali Khalid, who has worked as production manager at Dream company for several years. After careful review, Ali and Amal came up with the following breakdown of variable and fixed costs for May:
Total Cost | Variable Costs | Fixed Costs | |
Material used in production | $240,000 | $240,000 | 0 |
labor(assembly and supervisors) | 180,000 | 120,000 | $ 40,000 |
Facilities costs (rent, utilities, insurance….etc) | 60,000 | 30,000 | 30,000 |
Total | $480,000 | $390,000 | $70,000 |
Required:
Based on May’s information, describe the mix- cost function for Dream Company using the Accounting Analysis approach. (6 marks)
Assume that Dream Company intends to produce 6500 and 7,000 units on June and July respectively. What will be the Total production costs for June and July? (4 marks)
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