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EXERCISES Cost Function

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27 views3 pages

EXERCISES Cost Function

Uploaded by

memedodoms7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EXERCISES

Example 1:
Assume that the amount of total fixed costs in a factory L.E. 2,000,000, and the variable
cost is L.E. 40 per unit.
Required: Calculate total costs of production at 20,000 units of output.
Solution:

Y x xx x xb

Y = 2,000,000 + ( 40 * 20.000)

Y = 2,000,000 + 800,000

Y = L.E. 2,800,000
-------------------------------------------------------------------------------------------------
Example 2:
Assume that the amount of total costs in a factory L.E. 1,800,000 to produce 50,000 units
and the variable cost is L.E. 25 per unit.
Required: Calculate total fixed costs.
Solution:

Y x xx x xb

1,800,000 = a + ( 25 * 50.000)
1,800,000 = a + 1,250,000
a = 1,800,000 – 1,250,000
fixed costs = L.E. 550,000
Example 3:
If you have the following data about an industrial company:
Months Activity Maintenance costs
January 6320 L.E. 5256
February 3500 4210
March 3000 3304
April 4000 5100
Required:
1- Determine the cost function with the high-low method.
2- Determine the maintenance costs at a volume of 8000 machine hours.
Solution:
1- Determine the high level of cost and its related volume.
High level of cost = L.E. 5256
High volume = 6320 machine hours.
2- Determine the low level of cost and its related volume.
Low level of cost = L.E. 3304 L.E.
Low volume = 3000 machine hours.
3- Determine the variable cost per unit within the following equation:
cost at high volume − cost at low volume
High volume − Low volume
5256−3304
= = 0.588
6320−3000
4- Fixed component can be determined as follow:
Fixed cost = 5256 – ( 6320 hours × 0.588) = L.E.1540
5- Determine the maintenance costs at a volume of 8000 machine hours:

Y x xx x xb

Y = 1540 + (0.588 × 8000 hours)

Y = 1540 + 4704

Y = L.E. 6244

2
Example 4:
If you have the following data about an industrial company:
No. of minutes Telephone costs
High level 3000 L.E. 500
Low level 1000 220
Required:
1- Determine the cost function with the high-low method.
2- Determine the maintenance costs at a volume of 4000 minutes.
Solution:
1- Determine the high level of cost and its related volume.
High level of cost = L.E. 500
High volume = 3000 minutes.
2- Determine the low level of cost and its related volume.
Low level of cost = L.E. 220
Low volume = 1000 minutes.

3- Determine the variable cost per unit within the following equation:
cost at high volume − cost at low volume
High volume − Low volume

500−220
= = 0.14
3000−1000
4- Fixed component can be determined as follow:
Fixed cost = 220 – ( 1000 minutes × 0.14) = L.E.80
5- Determine the telephone costs at a volume of 4000 minutes:

Y x xx x xb

Y = 80 + (0.14 × 4000 minutes)

Y = 80 + 560

Y = L.E. 640

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