Accounting for Managers: Interpreting accounting information for decision-making

SOLUTIONS TO QUESTIONS 413

Solutions for Chapter 8

8.1
See Table A2.5.

8.2

Volume Variable Fixed Total Standard Average Marginal

150,000 1,050 300 1,350 9.00 7.00
140,000 980 300 1,280 9.14

The standard cost per unit is £9.00 at the budgeted level of activity.

The actual cost per unit is £9.14 – this is the actual average production cost per unit.

The marginal cost per unit is £7.00 – this is the variable cost per unit.

8.3
Volume Variable Fixed Total Avg cost/unit
10,000 70,000 100,000 170,000 £17
20,000 140,000 100,000 240,000 £12

The average cost reduces by £5 from £17 to £12. This is because the fixed costs of £100, 000

are spread over 20,000 documents (£5 per document) rather than 10,000 documents (£10

per document).

The marginal cost is £7, i.e. the variablecost. It does not change per unit irrespective of

volume within the relevant range.

The costs per unit at each activity level are:

10,000 20,000

Variable costs £7 £7

Fixed costs £10 £5

Average cost £17 £12

Table A2.5

Units Fixed Variable @ £7 Total Average

100,000 645,000 700,000 1,345,000 £13. 45

150,000 645,000 1,050,000 1,695,000 £11. 30

200,000 645,000 1,400,000 2,045,000 £10. 22