Questions and answers relating to Accounting

Question

a) Leopard Ltd makes three products, A, B and C. The selling price and cost per unit for each

of these products is budgeted as follows:

A B C

£/unit £/unit £/unit

Selling price *********

Direct labour *********

Direct materials (£12/kg) 72 48 84

Fixed overheads 45 60 75

Notes:

The maximum demand for each product per month is as follows:

A 4,500 units

B 3,750 units

C 7,500 units

Fixed overheads are absorbed based on the maximum demand

During the month there is a shortage of material with only 90,000 kgs available

Determine the production mix that will maximise profit in the month and calculate the resulting profit

b) “An understanding of how costs vary with different activity levels is essential for managers of businesses”.

Discuss the above statement including in your answer an explanation of the different ways in which costs vary as activity levels change giving examples