1. 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.


  • 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?
  1. 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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