Q 1 a - Discuss why managers estimate a cost function?

b- Suppose actual costs are higher than estimated cost. Analyze why you may have this difference between actual and estimated costs?

Q 2 Jassim Compagny is producing only one product. Two types of direct materials are used to produce this product direct material type A and direct material type B.

The estimated data for Jassim Compagny is as following:

Sales $90,000

Costs:

Direct materials type A $40,000

Hourly employees 15,000

Managers salary 10,000

Direct materials type B 5,000

Marketing 10,000

Total Costs 80,000

Budgeted pretax profit $ 10,000

The marketing costs include $5,000 that does not change with the change in sales volumes. The income tax rate is 20%.

a. Compute the revenues needed to achieve a target after-tax income of $30,000.

b. What is the margin of safety in revenue?

Q 3 Abdulwahab Corporation is estimating the cost function for total cost of production of product A using the high-low method. The data collected for the past year is as following:

Number of units Total

Quarter produced Costs

1 4,000 $ 1,000

2 5,400 1,280

3 7,000 1,600

4 9,000 2,000

Calculate the following :

a. The variable cost per unit

b. The Total Fixed Cost

c. Explain the method used by the company to estimate the cost function. Suggest other methods that may be used to estimate cost function.