Question

QUESTION ONE: MIXED COSTS WITH THE HIGH-LOW METHOD

Addy Whyte Limited has estimated its total factory overhead costs at both minimum and maximum levels of production for the next period as given below:

Minimum level of production 185,000 machine hours

Maximum level of production 250,000 machine hours

The total factory overhead, made up of variable costs, mixed costs and fixed costs, was estimated as $1,231,000 for 250,000 machine hours and $1,068,500 for 185,000 machine hours. At the minimum production level of 185,000 machine hours, the total factory overhead cost was made up of the following:

Fixed costs $380,000

Variable costs $370,000

Mixed costs $318,500

Total overhead cost $1,068,500

Required:

(a) Determine the fixed and the variable portion (rate per machine hour) of the mixed costs as follows:

(i) Calculate the variable costs at 185, 0000 minimum level of production.

(ii) Establish the mixed costs at the maximum production level of 250,000 hours.

(iii) Separate the variable portion (rate per machine hour) of the mixed cost using the High-Low Method AND determine the fixed portion of the mixed costs.

(b) Calculate the estimated total factory overhead cost for 200,000 machine hours.

QUESTION TWO: BUDGETING

Prime Athletics Ltd develops and runs athletics training programs for high schools in New Zealand. The company’s budgeted revenue for the first half of 2020 is as follows:

Month	Budget revenue($)
January	10 000
February	50 000
March	80 000
April	25 000
May	80 000
June	60 000
Total	$305, 000

All sales are made on account, with Prime Athletics Ltd invoicing schools on the last day of each month for that month’s services. 70% of schools pay in the month following the training and 30% pay the month after. In December 2019, Prime Athletics Ltd provided no training programs as schools were preparing for the end-of-year break. The company also made sure that all outstanding balances owed by schools from November were paid before the end of December 2019.

Required:

(a) Prepare a schedule of estimated cash collections for the six months to 30 June 2020 for Prime Athletics Ltd.

(b) Explain how budgeting helps in running an organisation efficiently and effectively

QUESTION THREE: CASH FLOW STATEMENT AND REPORTING

The following transactions were undertaken by Bright Star Ltd during the financial year ended 30 June 2019 (ignore GST):

(i) Issued ordinary shares for cash, $1 000 000.

(ii) Purchased land to be held for future expansion for $900 000 cash.

(iii) Paid off a long-term $360 000 loan plus interest of $32 000.

(iv) Sold for $480 000 used cars with a carrying amount of $200 000.

(v) Paid cash dividends of $220 000.

(vi) Purchased machinery factory, giving $120 000 cash and signing a mortgage loan for $400 000.

(vii) Purchased shares in Morning Star Ltd to be held as a long-term investment, paying $380 000 cash.

(viii) Issued 5% debentures for $1 400 000.

Required:

Prepare the financing activities section only of the Statement of Cash Flows for the year ending 30 June 2019 for Bright Star Ltd.

Answer 1