Cost and Reveunues question

alexp19740alexp19740 New MemberPosts: 16Registered
If anyone can give me a step by step answer to this question it would be greatly appreciated:-

Crossways Limited has prepared a forecast for the next quarter for one of its plastic components, CW22. This component is produced in batches and the forecast is based on producing and selling 600 batches.

One of the customers of Crossways Limited has indicated that it may be significantly increasing its order level for component CW22 for the next quarter and it appears that activity levels of 900 batches and 1,400 batches are feasible.

The semi-variable costs should be calculated using the high/low method. If 1,600 batches are sold the total semi-variable cost will be £4,000 and there is a constant unit variable cost up to this volume.


Complete the table below and calculate the estimated profit per batch of CW22 at the different activity levels.


Batches produced and sold 600 900 1,400

£ £ £

Sales revenue 5,700

Variable costs:

• Direct materials 900

• Direct labour 1,500

• Overheads 300

Semi-variable costs: 2,000

• Variable element

• Fixed element

Total cost 4,700

Total profit 1,000

Profit per batch 1.67

Comments

  • NpsNps Experienced Mentor Posts: 782Registered
    Hi,

    You are given the costs for 600 batches, so just divide all your variable costs (and sales revenue) by 600 and multiply by 900 and 1400 to get the appropriate flexed costs.

    The semi variable costs are where it gets a little trickier. You are told that 1600 batches will be £4000 and that 600 batches is £2000. Using the high low method, you will find that those extra 1000 batches have cost an extra £2000. You know this extra is all made up of variable costs (as the fixed portion will be the same in both), so you can calculate that the variable cost of each batch is £2. Substitute this into the costs for either 600 batches or 1600 batches and whatever is left will be your fixed portion of the semi variable cost (check you are right by checking you get the same answer whichever one you substitute it into). You should get £800. You can then work out your semi variable costs of 900 and 1400 batches by using £800 fixed plus £2 for each batch.

    Calculate your total cost and profit for 900 and 1400 batches by using your new figures (don't flex these figures from the original budget, use your new ones).

    Finally work out the profit per batch from the figures you have just calculated (total profit / number of batches).
  • alexp19740alexp19740 New Member Posts: 16Registered
    thanks much appreciated
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