Chapter 21, Problem E21.30E

To determine

1)

Introduction:

Variable and Fixed costs of Manufacture

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

High Low Method

• High low method is a method of determination and differentiation between variable and fixed costs in case of composite costs; in order to facilitate proper cost analysis, by comparing cost estimates for various quantities of goods manufactured.

• The High low method involves taking the highest estimate of costs for a particular activity level and lowest estimate of costs for a particular level and comparing the two in order to determine variable and fixed costs in case of composite costs.

• The differentiation between variable and fixed costs is essential from a contribution margin and breakeven point analysis and calculation perspective. However this method is only applicable when the costs consist of both variable and fixed elements of cost.

Variable cost per inspection

To determine

2)

Introduction:

Variable and Fixed costs of Manufacture

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

High Low Method

• High low method is a method of determination and differentiation between variable and fixed costs in case of composite costs; in order to facilitate proper cost analysis, by comparing cost estimates for various quantities of goods manufactured.

• The High low method involves taking the highest estimate of costs for a particular activity level and lowest estimate of costs for a particular level and comparing the two in order to determine variable and fixed costs in case of composite costs.

• The differentiation between variable and fixed costs is essential from a contribution margin and breakeven point analysis and calculation perspective. However this method is only applicable when the costs consist of both variable and fixed elements of cost.

Fixed cost per inspection

To determine

3)

Introduction:

Variable and Fixed costs of Manufacture

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

High Low Method

• High low method is a method of determination and differentiation between variable and fixed costs in case of composite costs; in order to facilitate proper cost analysis, by comparing cost estimates for various quantities of goods manufactured.

• The High low method involves taking the highest estimate of costs for a particular activity level and lowest estimate of costs for a particular level and comparing the two in order to determine variable and fixed costs in case of composite costs.

• The differentiation between variable and fixed costs is essential from a contribution margin and breakeven point analysis and calculation perspective. However this method is only applicable when the costs consist of both variable and fixed elements of cost.

Cost of 1200 inspections

To determine

4)

Introduction:

Variable and Fixed costs of Manufacture

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

High Low Method

• High low method is a method of determination and differentiation between variable and fixed costs in case of composite costs; in order to facilitate proper cost analysis, by comparing cost estimates for various quantities of goods manufactured.

• The High low method involves taking the highest estimate of costs for a particular activity level and lowest estimate of costs for a particular level and comparing the two in order to determine variable and fixed costs in case of composite costs.

• The differentiation between variable and fixed costs is essential from a contribution margin and breakeven point analysis and calculation perspective. However this method is only applicable when the costs consist of both variable and fixed elements of cost.

To Prepare:

Graph showing total costs incurred for inspections