Question for practice:

Data:
Production (Units)...................Cost(Rs.)
20,000....... ....... ......................82,000
16,000...... ...............................70,000
24,000....... ............... ..............90,000
22,000...... ............... ...............85,000
18,000......................................73,000

Required:
Question 1) Using regression analysis technique find
a) Fixed Cost (FC)
b) Variable Cost (VC) per Unit
Question 2) Using High Low method cross verify the Fixed cost and variable cost per unit arrived at by regression technique.

Note: There will be a slight difference between the figures calculated under both the methods but variation will be insignificant. In case of variation we will rely on the figures calculated under regression technique since it gives more accurate results as compared to high low method.

Attention:Intrested candidates of Accountancy group are requested to come up with solid solutions as soon as possible to cover most of the important topics.

No body could solve this problem, members were either not interested in this paper or they did not know the solution. Well, I my self gonna solve it as under:

Solution:Let suppose:
x = Units.
y = Cost.
n = Number of pairs of Cost and activity figures.
a = Fixed cost.
b = Variable cost per unit.

We have to use following equation

y = a + bx

Calculations: For simplicity figures are presented in (000)
x------------y-------------xy-------------x^2
20----------82---------1640--------------400
16----------70---------1120--------------256
24----------90---------2160--------------576
22----------85---------1870--------------484
18----------73---------1314--------------324
100--------400---------8104-------------2040

b =( (n * exy) – (ex * ey)) / ( (n * ex^2) – (ex)^2)

b =( (5 * 8104) – (100 * 400)) / ((5 * 2040) – (ex)^2)

b = 2.6 Hence variable cost per unit is Rs.2.6

a = ey/n – bey/n

a = 400/5 – (2.6 *100)/5

a = 28 as figures were taken in thousands so fixed cost will be 28 * 1000 = Rs.28,000

As per High Low Method:

--------Units--------Cost
Highest: 24-----------90
Lowest: 16-----------70
Diff:---- 8-----------20

Variable cost per unit = 20/8=Rs.2.5 per unit

Fixed cost = 90 – (24 * 2.5) = 30 as figures are stated in thousands so actual fixed cost will be Rs.30,000

Difference between Regression analysis and How Low cost Methods:
-----------------------Under Regression technique--------------Under High Low Method
Variable Cost per unit-------Rs.2.6 per unit--------------------------Rs.2.5 pe unit
Fixed Cost--------------------Rs.28,000----------------------Rs.30,000

We will rely on the regression results as these figures are more accurate than High Low method which is a rough idea.


Note; I am not so expert at computer so I used x^2 for x square and used e for summation notation.

Best of Luck

Here comes an other Question:

Data: ABC Company is submitting a bid to produce 11,250 ceramic plates. The company estimates that the cost of materials will be Rs.13,000 and labor cost Rs.15,000. Factory overhead is applied at Rs.2.70 per direct labor hour in the Molding Department and at 35% of the direct labor cost in the Decorating Department. They estimate that 1,000 direct labor hours at a cost of Rs.9,000 will be required in Molding Department. The company expects a mark up of 45% of its total production cost.

Required:
Determine the following:
1) Estimated cost to produce.
2) Estimated prime cost.
3) Estimated conversion cost.
4) Bid price.




Where are the accounting experts? Where are those who claim that we are being guided by our CSS academy tutors?
Question is waiting for them.

Put your effort to solve the question. In case you do not come up with solution I will post its solution very soon. But I am not happy with the lethargic efforts of our other members who are either good at this subject or have even opted this paper.

Solution:

Rs

Direct Materials......................................... ..............13,000

Direct Labor- Molding Department (1000 hrs)...9,000
Direct Labor- Decorating Department.............6,000
--------------------------------------------------
Add:Total Direct Labor cost......................................15,000
------------------------------------------------------------
Estimated Prime Cost.............................................. ..........28,000

Factory Overheads- Molding Department (1000 hrs *Rs2.70).....2,700
Factory overheads- Decorating Department(Rs6,000*35%).......2,100
------------------------------------------------------------------
Add:Total factory overheads......................................... ........4,800
--------------------------------------------------------------------------
Estimated Cost to produce........................................... ........32,800




2) Estimated prime cost. already calculated in the number one i.e Rs 28,000





Direct Labor..................................15,000
Add:Factory overheads.....................4,800
--------------------------------------------
Estimated Conversion cost...............19,800





Estimated production cost.......................32,800
Add: Mark up (45%)...............................14,760
----------------------------------------------------
Bid price............................................4 7,560







Good Luck
Raz