Solution to exercise 1.1

1) b, c
2) $220,000
3) a, c, j

Solution to exercise 1.2

(a) (i) Prime cost Reference number 2, 5, 10, 15, and 16 ii) Production overhead Reference number 1, 6, 8, 12, 19, and 20 iii) Administration overhead Reference number 3, 9, and 11 iv) Selling overhead Reference number 7, 14, and 17 v) Distribution overhead Reference number 4, 13, and 18

(b) (i) Variable Reference number 2, 5, 10, 14, 15, 16, and 18 ii) Fixed Reference number 1, 3, 4, 11, 12, 13, 17, 19, and 20 iii) Semi-variable Reference number 6, 7, 8, and 9

Solution to exercise 1.3

| |Number of units produced |Unit cost |Total cost |
|Cost X |1 |20 |20 |
|(Variable cost) | | | |
| |10 |20 |200 |
| |100 |20 |2,000 |
| |1,000 |20 |20,000 |
|Cost Y |1 |5,000 |5,000 |
|(Fixed cost) | | | |
| |10 |500 |5,000 |
| |100 |50 |5,000 |
| |1,000 |5 |5,000 |
|Cost Z |1 |4,025 |4,025 |
|(Semi- variable | | | |
|cost) | | | |
| |10 |425 |4,250 |
| |100 |65 |6,500 |
| |1,000 |29 |29,000 |

Solution to exercise 1.4

| | |d F | |
| | |I | |
| |cO | |eM |
|Highest activity level |5 |$10,200 |22 |
|Lowest activity level |9 |$7,500 |13 |
|Difference | |$2,700 |9 |

|Variable cost per tonnes |= |Difference in costs |
| | |Difference in activity level |
| |= |$2,700 / 9 tonnes |
| |= |$300 per tonnes |

|Fixed cost |= |Total cost less total variable cost |
| | | |
|At the highest level: |= |$10,200 - $300 x (22 tonnes) |
| |= |$3,600 |
| | | |

The cost function of Evergreen Ltd. measured by high-low method is y = $3,600 + $300 per tonnes

(b) If the output level is 25 tonnes, the total manufacturing costs: Total manufacturing costs = $3,600 + $300 (25 tonnes) = $11,100