- A business sells two products and provided the following budget information for your analysis and comments:
| Items | Gamma | Delta |
| Sales (units) | 4 800 | 3 200 |
| Selling price per unit | $20 | $30 |
| Variable cost per unit | $12 | $15 |
| Total fixed costs (for both) $ 62,100 |
The manager of the business has noticed that Delta has a higher contribution margin per unit than Gamma and wants to investigate the impact on profits if the two items were sold in a ratio of 50:50.
Required:
- What profit is expected based on the current sales mix?
- What is the break-even point on the current sales mix?
- What would be the expected profit in the two items were sold in the proportion 50:50?
- What would be the new break-even point at a 50:50 sales mix?
- Actdot Inc has an overhead budget of $ 1200, 000 that was based on 24,000 direct labour hours. The firm is investigating the possible introduction of activity-based costing and has prepared the following information.
Activity-based budget:
Activity Costs Cost driver
$
Design 250 000 1000 design changes
Assembly 800 000 20 000 machine hours
Testing 150 000 1000 tests
Actual results recorded for Job No. 94 were:
Direct labour hours 80
Design changes 4
Machine hours 60
Tests 5
- Calculate the single overhead application rate using direct labour hours.
- Calculate the application rate for each activity based on the particular cost driver.
- Determine the overhead applied to Job No. 94 using the traditional and activity-based costing methods.
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