The following sales and cost data are provided:

Question

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