Formulas

Question 1

Total Variable Cost

Answer 1

Variable Cost Per Unit x Level of Output

Question 2

Total (Mixed) Cost

Answer 2

Total Fixed Cost + Total Variable Cost

Question 3

High/Low Method Variable Cost Per Unit

Answer 3

Cost difference (between highest and lowest) / activity level difference (between highest and lowest)

Question 4

Re-Order Level (Level at which an order to replenish inventory should be set in motion)

Answer 4

Re-Order Level = Maximum Usage rate (per day) x Maximum Lead Time (in days)

Question 5

Minimum Inventory Level (Level below which inventories should not normally be allowed to fall)

Answer 5

Minimum Inventory Level = Re-Order Level - (Average Usage Rate per day x Average Lead Time in days)

Question 6

Economic Order Quantity (The quantity which is most economical to order when an order is due to be placed)

Answer 6

EOQ = Square Root of (2DO/H)
D = Demand for the period
O = Order cost per order
H = Holding cost per unit for the period

Question 7

Annual Holding Cost

Answer 7

(Quantity (units) per order / 2) x Holding Cost

Question 8

Maximum Inventory Level (Level above which inventory should not be allowed to rise)

Answer 8

Maximum Inventory Level = Re-Order Level + EOQ - (Minimum Usage Rate x Minimum Lead Time)

Question 9

Overhead Absorption Rate (labour intensive)

Answer 9

(Total budgeted overheads in department / Total number of budgeted labour hours in department) = OAR per labour hour

Question 10

Overhead Absorption Rate (machine intensive)

Answer 10

(Total budgeted overheads in department / Total budgeted machine hours in department) = OAR per machine hour