Question $1[20$ marks$]($COST CLASSIFICATION & BEHAVIOUR$)$

Ntombeni Limited has a financial year starts on $1$ March and ends on $28$ February. The management accountant of the company has just prepared the budget for the forthcoming year, based on the following cost structure:

$\backslash$table$[[-$ Number of units to be produce,$7000$ units$],[-$ Direct material,R$49$ per unit$],[-$ Direct labour,R$21$ per unit$],[-$ Indirect labour $($all variable$),$R$28000],[-$ Other manufacturing overheads variable$),$R$21000],[-$ Selling and administrative expenses $($all fixed$),$R$28000]]$

Required

Calculate the following:

$1\mathrm{.}1$ Prime costs per unit

$[2]$

$1\mathrm{.}2$ Total conversion costs

$1\mathrm{.}3$ Total manufacturing costs $[5]$

$1\mathrm{.}4$ Total period costs

$[3]$

$1\mathrm{.}5$ Total variable manufacturing costs $[4]$

$1\mathrm{.}6$ If the company produces fewer than $7000$ units in the forthooming year, would you expect the total variable costs to increase, decrease or remain constant? $($Explain only $-$ no calculations necessary.$)[3]$

DamelinQ

Individual Assignment

Page $2$ of $7$

Question $2($HIGH LOW METHOD AND REGRESSION ANALYSIS$)(30$ marks$)$

Ocean Ltd is preparing its budget for the year to $31$ December $2023.$ The following information has been prepared:

$\backslash$table$[[$Month$,$Labour hours $\text{'}000,\backslash$table$[[$Maintenance expense$],[$R$\text{'}000]]],[$January$,40,850\mathrm{.}00],[$February$,32,750\mathrm{.}00],[$March$,38,780\mathrm{.}00],[$April$,46,980\mathrm{.}00],[$May$,62,1320\mathrm{.}00],[$June$,36,730\mathrm{.}00],[$July$,31,690\mathrm{.}00],[$August$,31,690\mathrm{.}00],[$September$,39,820\mathrm{.}00],[$October$,45,920\mathrm{.}00],[$November$,48,1020\mathrm{.}00],[$December$,56,1250\mathrm{.}00]]$

Required:

a$.$ Estimate the linear cost equation using the High$-$Low Method $[9]$

b$.$ Estimate the regression equation using Ordinary least squares regression method. The following normal equations should be used:

$y=na+b{\displaystyle \underset{?}{\overset{?}{}}}x$

$xy=ax+b{\displaystyle \underset{?}{\overset{?}{}}}{x}^2$

c$.$ Estimate using the equation in $($a$.)($high low method$),$ if the total cost per month amounts to $10000$ hours

d$.$ Estimate using the equation in $($b$.)($Least square regression$),$ if the total cost per month amounts to $10000$ hours

e$.$ In your opinion evaluate the two methods based on your results above and advise management as to which method would be best to use for estimation purposes.

$[2]$