SECTION B APPLICATION QUESTION Q1: Variable and Absorption Costing Total marks for this question: 25 marks [Suggested time: 35 minutes] Blackwood Pty Ltd.'s planned production for the current year was 20 000 units. This production level was achieved, but only 17 500 units were sold at $72 each. Other data are as follows: Direct materials used $145 000 Direct labor cost incurred 80 000 Fixed manufacturing overhead (actual & planned 105 000 Variable manufacturing overhead (actual & planned) 42 000 Fixed selling and administrative expenses 100 000 Variable selling and administrative expenses 16 800 Finished goods inventory, 1 January None The company uses normal costing. There were no work in process inventories at the beginning or end of the year. REQUIRED: Show All workings 1. Calculate the cost per unit under: variable costing system (2m) absorption costing (3m) 1. 2. Prepare an income statement for Blackwood for the current year using: Variable costing (7) . Absorption costing (om) 3. Which costing method, absorption costing or variable costing, shows a higher operating profit? Why? (3m) 4. Which costing method, variable or absorption, would you recommend to Blackwood's management Explain. (4m) hp SCIUN Q1: Case - Cost Estimation: Hospital Total marks for this question: 25 marks [Suggested time: 35 minutes) "I don't understand this cost report at all, exclaimed John Carter, the newly appointed administrator of AngelCare General Hospital. Our administrative costs in the new pediatrics clinic are difficult to understand. One month the report shows $16600, and the next month it's $32200. What's going on?" Carter's question was posed to Alice Baines, the hospital's accountant. The main problem is that the clinic has experienced some widely varying patient loads in its first year of operation. Baines replied. There seems to be some confusion in the public's mind about what services we offer in the clinic. When do they come to the clinic? When do they go to the outpatients department that sort of thing. As the patient load has varied, we've frequently changed our clinic administrative staffing. Also, we have found that the number of emergency procedures varies each month, and emergency procedures cause additional staff costs." Carter continued to puzzle over the report. Could you put some data together, Alice. so we can see how this cost behaves over a range of patient loads. You'll have it this afternoon'. Baines responded. She set to work right away and gathered the following data: May Month Number of emergency procedures Patient load Administrative cost January 20 2800 $27,800 February 22 1000 14,000 March 10 800 12.000 April 20 2000 20.000 24 2600 23.800 June 28 1800 18.400 July 16 2200 20.400 August 14 600 8.200 September 24 1400 18.800 October 24 2400 November 22.200 16 1200 December 16.600 32 3000 32.200 Baines does not believe that the first year's widely fluctuating patient load will be experienced again in the future. She has estimated that the clinic's relevant range of monthly activity in the future will be 600 to 1 200 patients, REQUIRED: Show ALL workings 1. Use the high-low method to estimate the behavior of the clinic's administrative costs, based on patient load within the relevant range. Use on equation to express the results of this estimation method. (7m) 2. What is your prediction of the clinic's administrative cost during a month when 800 patients visit the hospital (2m) 3. Would you use the cost function from requirement 3 to predict the clinic's administrative cost for 300 patient visits ? Explain your answer. (2m) 4. Identify the number of emergency procedures, patient load and administrative costs for each month within the relevant range. (6m) 5. Does the inclusion of the additional cost driver of emergency procedures improve the modelExplain your answer. (8m)