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Identify the nature of costs and segregate mixed cost into fixed and variable components.

Accounting

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2 parts
b(i)

Rs. 1.5 per unit\text{Rs. } 1.5 \text{ per unit}

Rs. 5,000\text{Rs. } 5,000

b(ii)

Rs. 1.0 per unit\text{Rs. } 1.0 \text{ per unit}

Rs. 10,000\text{Rs. } 10,000

Step-by-step solution

4 steps

Here's the solution to your management accounting problem.

Part a

Identify the nature of costs

DetailsLevel of Activity (20,000 units)Level of Activity (30,000 units)Nature of Cost
Direct materialsRs. 60,000Rs. 90,000Variable cost
Direct labourRs. 40,000Rs. 60,000Variable cost
SupervisionRs. 35,000Rs. 50,000Mixed cost
Repair and maintenanceRs. 30,000Rs. 40,000Mixed cost
DepreciationRs. 25,000Rs. 25,000Fixed cost
SalaryRs. 50,000Rs. 50,000Fixed cost

Part b(i)

Rs. 1.5 per unit\text{Rs. } 1.5 \text{ per unit}

Supervision

Segregate mixed cost into fixed and variable components

We will use the high-low method for segregation.

  1. Calculate Variable Cost Per Unit (VCPU)

    VCPU=Cost at high activity−Cost at low activityHigh activity level−Low activity level\text{VCPU} = \frac{\text{Cost at high activity} - \text{Cost at low activity}}{\text{High activity level} - \text{Low activity level}} VCPU=Rs. 50,000−Rs. 35,00030,000 units−20,000 units\text{VCPU} = \frac{\text{Rs. } 50,000 - \text{Rs. } 35,000}{30,000 \text{ units} - 20,000 \text{ units}} VCPU=Rs. 15,00010,000 units\text{VCPU} = \frac{\text{Rs. } 15,000}{10,000 \text{ units}} VCPU=Rs. 1.5 per unit\text{VCPU} = \boxed{\text{Rs. } 1.5 \text{ per unit}}

  2. Calculate Fixed Cost

    Using the high activity level:

    Fixed Cost=Total Cost at high activity−(VCPU×High activity level)\text{Fixed Cost} = \text{Total Cost at high activity} - (\text{VCPU} \times \text{High activity level}) Fixed Cost=Rs. 50,000−(Rs. 1.5 per unit×30,000 units)\text{Fixed Cost} = \text{Rs. } 50,000 - (\text{Rs. } 1.5 \text{ per unit} \times 30,000 \text{ units}) Fixed Cost=Rs. 50,000−Rs. 45,000\text{Fixed Cost} = \text{Rs. } 50,000 - \text{Rs. } 45,000 Fixed Cost=Rs. 5,000\text{Fixed Cost} = \boxed{\text{Rs. } 5,000}

Part b(ii)

Rs. 1.0 per unit\text{Rs. } 1.0 \text{ per unit}

Repair and Maintenance

  1. Calculate Variable Cost Per Unit (VCPU)

    VCPU=Cost at high activity−Cost at low activityHigh activity level−Low activity level\text{VCPU} = \frac{\text{Cost at high activity} - \text{Cost at low activity}}{\text{High activity level} - \text{Low activity level}} VCPU=Rs. 40,000−Rs. 30,00030,000 units−20,000 units\text{VCPU} = \frac{\text{Rs. } 40,000 - \text{Rs. } 30,000}{30,000 \text{ units} - 20,000 \text{ units}} VCPU=Rs. 10,00010,000 units\text{VCPU} = \frac{\text{Rs. } 10,000}{10,000 \text{ units}} VCPU=Rs. 1.0 per unit\text{VCPU} = \boxed{\text{Rs. } 1.0 \text{ per unit}}

  2. Calculate Fixed Cost

    Using the high activity level:

    Fixed Cost=Total Cost at high activity−(VCPU×High activity level)\text{Fixed Cost} = \text{Total Cost at high activity} - (\text{VCPU} \times \text{High activity level}) Fixed Cost=Rs. 40,000−(Rs. 1.0 per unit×30,000 units)\text{Fixed Cost} = \text{Rs. } 40,000 - (\text{Rs. } 1.0 \text{ per unit} \times 30,000 \text{ units}) Fixed Cost=Rs. 40,000−Rs. 30,000\text{Fixed Cost} = \text{Rs. } 40,000 - \text{Rs. } 30,000 Fixed Cost=Rs. 10,000\text{Fixed Cost} = \boxed{\text{Rs. } 10,000}
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