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Kamakis limited, a manufacturing company is concerned with the variation in its total manufacturing costs....

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Question

Accounting

  1. Kamakis limited, a manufacturing company is concerned with the variation in its total manufacturing costs. The production manager has therefore requested you to estimate a predictable cost pattern to be used in future cost prediction.

Based on judgment, the plant manager has classified each manufacturing cost as fixed, variable or partly fixed and partly variable. He has provided you with the following information for the month June 2021 when 10,000 units were produced:

Details

Cost

(Sh.)

Cost behavior

Direct materials

420,000

Variable

Direct labour

150,000

Variable

Depreciation

80,000

Fixed

Telephone

2,000

Fixed

Other utilities

40,000

20% fixed

Supervisors salary

200,000

80% fixed

Equipment repairs

60,000

10% fixed

Indirect materials

4,000

Variable

Factory maintenance

60,000

90% fixed

Required:

  1. Using the accountants analysis method, estimate the fixed cost per month and the variable cost per unit
  2. Based on your answer in (i) above, compute the incremental cost of producing 2,000 units

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