Question

In: Accounting

1. Norton Company’s manufacturing costs for 2009 were as follows: Direct materials, P300, 000; Direct labor...

1. Norton Company’s manufacturing costs for 2009 were as follows: Direct materials, P300, 000; Direct labor – P400, 000; Factory overhead variable – P80, 000 and fixed – P50, 000.

  1. Prime cost
  2. Conversion cost
  3. Total manufacturing cost

2. The total maintenance costs of Silver Company in the last four months are presented below:

                Month                     Machine hours                        Maintenance cost

                January                    7, 200                                      P450, 000

                February                  6, 800                                      P422, 000

                March                      7, 000                                      P440, 000

                April                        6, 400                                      P418, 000

  1. Variable cost per machine hour
  2. Total fixed cost
  3. Budgeted maintenance cost in May if the company is planning to use 7, 500 hours.
  4. Budgeted maintenance cost in May if the company is planning to use 8, 000 hours.

Solutions

Expert Solution

1.

Prime cost is the total of all direct expenses incurred to make a particular product. It is the total of Direct materials + Direct labour + Direct expenses. These are the expenses which can be directly attributable to a particular product or which can be directly identifiable from a product.

Direct materials 300000
Direct labor 400000
Prime cost 700000

Conversion cost is the total expenses incurred to convert the materials into finished product and it includes direct labour and overhead expenses.

Direct labour 400000
Factory overhead variable 80000
Factory overhead fixed 50000
Conversion cost 530000

Total Manufacturing cost is the total of all direct and indirect cost incurred to make a product. It is the total of prime cost and all indirect overhead.

Direct materials 300000
Direct labour 400000
Prime cost 700000
Add Factory overhead:
                                 Variable 80000
                                 Fixed 50000
Cost of manufacturing 830000

2. Variable cost per machine hour

As various activity levels and associated costs are given, use High-Low method.

Highest Activity level 7200 450000
Lowest Activity level 6400 418000
Difference (Hi - Lo) 800 32000

Variable cost per unit = 32000 / 800 = 40 per machine hour

To calculate the total fixed cost, apply the variable cost per unit in one of the two levels:

If applied in highest level:

Total cost = Variable cost + fixed cost

450000 = (7200 x 40) + FC

Fixed Cost = 450000 - 288000 = 162000

If applied in lowest level:

Total cost = Variable cost + fixed cost

418000 = (6400 x 40) + FC

Fixed Cost = 418000 - 256000 = 162000

Budgeted maintenance cost in May if the company is planning to use 7, 500 hours.

Total cost = Variable cost + Fixed cost

= ( 7500 x 40 ) + 162000

= 300000 + 162000

= 462000

Budgeted maintenance cost in May if the company is planning to use 8, 000 hours.

Total cost = Variable cost + Fixed cost

= ( 8000 x 40 ) + 162000

= 320000 + 162000

= 482000

ekkarill92 answered 1 year ago
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