Summary MAC2601 EXAM PACK PAST QUESTIONS AND SOLUTIONS

MAC REVISION STUDY PACK TOPIC 1: NATURE AND BEHAVIOUR OF COSTS (1) Manufacturing cost/ Production cost Manufacturing costs - costs incurred in the manufacturing process of a product.  Direct + Indirect cost = Manufacturing cost  Direct cost = Direct Material + Direct Labour  Total Direct cost = Prime cost  Conversion cost = Direct Labour + Manufacturing overheads  Indirect cost = Indirect material + Indirect Labour  Total Indirect cost = Overheads Direct cost – costs directly linked to the product. Indirect cost – costs indirectly linked to the product Manufacturing Total cost = variable cost + fixed cost  Variable cost – costs that vary with production e.g. material costs  Fixed cost – costs that are constant throughout the manufacturing period e.g. Rent.  Semi variable cost – cost that have both elements variable element and fixed element e.g. Telephone bill Non Manufacturing cost / Period costs Non Manufacturing cost – costs incurred after the manufacturing process a. Marketing cost – costs related to the sale and distribution of the final product. b. Administrative costs – costs incurred in directing and controlling the organization. Splitting – fixed from variable cost Methods used  High low method  Linear equation  Scatter diagram  Simple regression analysis / least squares methods We will concentrate on the high low method e.g. Observations No. of Units Total overhead cost GR TUTORIALS 2 1 step - identify the two points highest level and the lowest level and calculated the differences. High Low 2. Calculate the variable rate = = R100/m Variable cost after producing 900 units and 900 x 100 = R90 000 3. Calculating fixed cost Total cost = fixed cost + variable cost. 120 000 = fixed cost + 90 000 (900x100) 120 000 = f x d cost + 90 000 120 000 – 90 000 = f x d COH 30 000 = FX d cost GR TUTORIALS 3 GR TUTORIALS 4 Cost Volume – profit analysis It investigates the change in profit that from changes in activity levels Selling price per unit Variable cost per unit Total fixed costs NB: Assumptions of the cost CVP analysis  Selling price per unit in consultant unless stated.  All cost is linear and can be accurately dividend into variable and fixed elements.  Variable costs are constant per unit, where as fixed cost, we content in total over the relevant range.  Inventory levels do not change –  CVP. Analysis applies to the relevant range only.  Relevant range – activity levels within which the organization normally operates and for which cost and remains behavior are known and can be predicted. Formulas Contribution = sales - total variable costs Contribution ratio = x 100 % Breakeven Point  Point where income is equal to expenses i.e. profit is zero  Contribution = total fixed cost Can be expressed in units or value (Rand value) BEP in units = Contribution per units = selling price/unit – variable cost per unit BEP in value = NOTE: BEV = BE units x selling price per unit BE units = Margin of safety (MOS) Amount, or number of units or percentage by which sales revenue may decline before incurring a loss. Margin of safety In value = total sales – breakdown sales In units = total sales (units) – break even sales units Margin of safety Ratio C