Question - Factory X produces a single product which is made from 10 kg of Material A and 5 kg of Material B. These quantities allow for waste.

The purchase prices of these materials are:

Material A £0.50 per kg of annual quantities up to 80,000 kg, with a discount of 5% for annual quantities over 80,000 kg and 10% over 100,000 kg. The discount is applied to the whole order.

Material B £0.20 per kg of annual quantities up to 50,000 kg, with a discount of 10% if over 50,000 kg and 15% over 100,000 kg. The discount is applied to the whole order.

The policy is to order only sufficient material to meet production requirements. The normal annual capacity of the factory is 12,000, and this requires 50,000 direct-labour hours at a cost of £0.60.

Instructions: Draw up a budget cost statement showing, in detail, the production cost per article at 60%, 80% and 100% of normal operating capacity. The cost per article must be calculated in pounds to 3 decimal places. The budgeted production overheads at these three levels of activity are £800, £950 and £1,050, respectively.