Question

Appex company can produce 4,000 units of a product at 100% capacity. Following information is abailable from its records:

Units produced	2800	3600
power	1800	2000
repair and maintenance	500	560
indirect labor	700	900
consumable stores	1400	1800
inspection	200	240
depreciation	1400	1400
salary	1000	1000

Direct Material cost $1 per unit

Direct wage cost $4 per hour

Rate of the prodcution per hour is 10 units

You are required to compute the cost of the production at 100%, 80% and 60% capacity level showing variable, semi variable and fixed items under flexible budget

Answer 1

Units produced	2800	3600
power	1800	2000	Semi-variable
repair and maintenance	500	560	Semi-variable
indirect labor	700	900	Variable
consumable stores	1400	1800	Variable
inspection	200	240	Semi-Variable
depreciation	1400	1400	Fixed
salary	1000	1000	Fixed

Power =
Variable cost = (2000 - 1800) / (3600-2800) = 0.25
Fixed cost = 1800 - 2800*.25 = 1100

Repair and maintenance =
Variable Cost = (560 - 500) / (3600 - 2800) = 0.075
Fixed cost = 500 - 2800 * 0.075 = 290

Inspection =
Variable cost = (240 - 200) / (3600 - 2800) = 0.05
Fixed cost = 200 - 2800 * 0.05 = 60

Total variable cost = Direct material ($1) + Direct wage cost ($4/10) + Power + Repair and maintenance + indirect labor + Consumables + inspection
= 1 + 0.4 + 0.25 + 0.075 + 0.05
= 1.775
Total fixed cost = Power + Repair and maintenance + inspection + Depreciation + salary
= 1100+ 290 + 60 + 1400 +1000
= 3850

Cost of production at 100% = Units * Variable cost + Fixed cost
= 4000 units * 1.775 + 3850
= 10,950

Cost of production at 80% = Units * Variable cost + Fixed cost
= 3200 units * 1.775 + 3850
= 9530

Cost of production at 60% = Units * Variable cost + Fixed cost
= 2400 units * 1.775 + 3850
= 8110