Question

The following sales and cost data are provided:

Direct materials used R150 000

Direct labour R200 000

Overheads (all indirect, 60% variable) R100 000

Selling and administration expenses

(50% direct and 75% variable) R300 000



REQUIRED

Calculate the following costs:

Prime cost = Blank 1

Conversion costs = Blank 2

Product cost = Blank 3

Variable production cost = Blank 4

Total fixed costs = Blank 5

Answer 1

To calculate the different costs based on the provided data, let's define and compute each respective cost category.

### 1. Prime Cost
Prime Cost consists of direct materials and direct labor.

\[
\text{Prime Cost} = \text{Direct Materials} + \text{Direct Labour}
\]
\[
\text{Prime Cost} = R150,000 + R200,000 = R350,000
\]

**Blank 1: R350,000**

### 2. Conversion Costs
Conversion Costs consist of direct labor and overheads (both direct and indirect).

**Total Overheads** = R100,000 (60% Variable means 40% Fixed)
- Variable Overheads = 60% of R100,000 = R60,000 (Variable portion)
- Fixed Overheads = 40% of R100,000 = R40,000 (Fixed portion)

\[
\text{Conversion Costs} = \text{Direct Labour} + \text{Total Overheads}
\]
\[
\text{Conversion Costs} = R200,000 + R100,000 = R300,000
\]

**Blank 2: R300,000**

### 3. Product Cost
Product Cost includes Prime Cost and total overheads (which is a sum of variable and fixed overhead costs).

\[
\text{Product Cost} = \text{Prime Cost} + \text{Total Overheads}
\]
\[
\text{Product Cost} = R350,000 + R100,000 = R450,000
\]

**Blank 3: R450,000**

### 4. Variable Production Cost
Variable Production Cost includes the variable portion of the overheads.

Since direct materials and direct labor are typically considered fixed in nature for this calculation:
- As defined, direct labor and direct materials are all fixed in nature here, but overheads are 60% variable.

\[
\text{Variable Production Cost} = \text{Direct Materials} + \text{Direct Labour} + \text{Variable Overheads}
\]
\[
\text{Variable Production Cost} = R150,000 + R200,000 + R60,000 = R410,000
\]

**Blank 4: R410,000**

### 5. Total Fixed Costs
Total fixed costs consist of the fixed portion of overheads and fixed selling and administration expenses.

**Selling and Administration Expenses** = R300,000
- 50% Direct, thus 50% = R150,000 (this portion of selling & admin costs is fixed)
- 75% are variable, thus 25% = R75,000 (which is fixed)

\[
\text{Total Fixed Costs} = \text{Fixed Overheads} + \text{Fixed Selling and Admin Expenses}
\]
\[
\text{Total Fixed Costs} = R40,000 + R150,000 = R190,000
\]

**Blank 5: R190,000**

### Final Answers
- **Blank 1:** R350,000
- **Blank 2:** R300,000
- **Blank 3:** R450,000
- **Blank 4:** R410,000
- **Blank 5:** R190,000