Force X Marks

Break even number of units = Total fixed manufacturing overheads

Contribution per unit

25,600
49.50

517.17
518 Force X 1C

Margin of safety = Sales less break even number of units

1,000 - 518
482 1C
1
Calculations 1
1
C1: Manufacturing overheads separation using high-low method 1
1
Variable cost per unit = $74,000 - $52,000 1
22,000 -12,000 1
2.20 1
1
Using 22,000 units activity level: 1
Fixed costs = $74,000 - ($2.20 x 22,000) 1
25,600.00 1C
1
C2: Contribution 1
$ $ 1
Selling price 100.00 1
Less variable costs 1
Raw materials: 1
Enzymes -2.50 1
Activated carbon and ethanol -11.00 1
PH adjusters -10.00 1
Surfactants -0.80 1
Direct labour -24.00 1
Variable overheads (C1) -2.20 -50.50 1C
Contribution per unit 49.50 1C

Total 12
Make or buy decision Marks
Food additives Plant resins Reason
$ $
Direct materials 6.00 7.00 1
Direct labour 5.00 9.00 1
Cost of electricity 2.50 3.00 1
Salary of supervisor 0.15 0.10 allocated cost, irrelevant 1
Depreciation - - fixed costs, irrelevant 1
General and administrative expenses - - fixed costs, irrelevant 1
Cost of machinery - - sunk cost 1
Cost of producing internally 13.65 19.10 1
Cost of buying from Mama Foods 12.50 23.00 1
Extra variable cost of buying/Savings 1.15 - 3.90
Production units 10,000.00 15,000.00 1
Total variable cost of buying 11,500.00 - 58,500.00 1
Fixed costs saved by closure 40,000.00 50,000.00 1
Net extra costs/(saving) of buying 51,500.00 - 8,500.00 1

Comments

It is cheaper to purchase food additives as the cost of producing internally is higher than purchasing from Mama Foods 1
The opposite is true for plant resins, where AC would rather produce internally than purchase from Mama Foods 1
However, it seems that it will cost AC more to shut down internal production of the products and switch to purchasing from
Mama Foods 1

Total 16
 Receipts and inspection Storage Packaging Marks
$ $ $
Labour:
Normal pay 70,000.00 35,000.00 245,000.00 1
Overtime pay 6,000.00 18,000.00 6,000.00 1
Occupancy costs 200,000.00 50,000.00 250,000.00 1
Administration costs 30,000.00 15,000.00 15,000.00 1
Total Overhead costs 306,000.00 118,000.00 516,000.00 1

Number of boxes
Inspection time (Labour cost Square metres (Storage (Packaging cost
Customer driver) costs driver) driver)
Mimosa Mines 6 0.3 35
Homeric Construction 9 0.4 45
Astra Paints 15 0.3 60
Total cost drivers 30 1 140 1

Cost driver rate 10,200 118,000 3,686 3 1 mark per cost driver rate
per minute per square metre per box 1 matching correct cost driver to the correct activity

Cost per unit for the packaged chemicals

Mimosa Mines Homeric Construction Astra Paints

$ $ $
Packaged material 325,000.00 650,000.00 975,000.00 1
Receipts and inspection 61,200.00 91,800.00 153,000.00 1 C Give a concept mark if a student correctly
uses the cost driver to do the overhead
Storage 35,400.00 47,200.00 35,400.00 1 C allocation (Regardless that the drive rate
Packaging 129,000.00 165,857.14 221,142.86 1C maybe incorrect)
550,600.00 954,857.14 1,384,542.86 1
Number of units 30,000 45,000 25,000
Cost per unit per customer 18.35 21.22 55.38 3C

Total 18