Question E3

(a) The following costs have been extracted from the records of Organic-Soap Enterprise:

Month Activity level Total cost

Pieces RM

January 14,050 640,200

February 14,500 642,500

March 13,880 598,250

April 14,800 646,340

May 12,990 565,350

June 12,280 540,500

Required:

1. Calculate the fixed costs per month and variable cost per piece using the

High-Low method. (10 marks)

2. Estimate total cost when the following number of units are produced:
   1. 13200 units (2 marks)
   2. 14550 units (2 marks)

2. A manufacturing company is searching for a method that helps to identify

variable cost per unit and fixed cost. In the last meeting, one of the

accountants suggested that High-low method should be considered. The

owner learns that you have completed a cost accounting course recently

and seeks your opinion.

Required:

Identify and discuss the possible challenges that management may face

when such method is implemented. (6 marks)

(Total 20 marks)