Question 1

Use diagrams to help explain the cost behaviour of both semi-variable costs and step-fixed costs. Provide descriptive examples of each type of cost in details. (15 Marks)

Question 2

The following budgeted data is available to allow an estimate to be made of company overhead absorption rates for the forthcoming financial period:

Cost	TOTAL	Cutting	Assembly	Stores	Maintenance
Machine dep	MVR310,000
Supervisor	MVR196,000
Electricity	MVR246,000
Rent & rates	MVR174,000
TOTAL	MVR926,000

	Book value machines	No. Employees	KWs used	Floor area m
Cutting	180,000	96	120,000	78,000
Assembly	72,000	72	160,000	36,000
Stores	-	12	45,000	24,000
Maintenance	108,000	20	75,000	12,000

Stores provide 75% of its services to Cutting and 25% of its services to Assembly.

Maintenance provides 30% of its services to Cutting and 70% of its services to Assembly.

Required:

Calculate the overhead absorption rates for Cutting and Assembly if: Cutting is machine intensive and is budgeted at 110,000 hours activity; and Assembly is labour intensive and is budgeted at 80,000 hours activity.