1. Quality Ltd. is engaged in production of three types of ice-cream products: Coco, Strawberry and Vanilla. The company presently sells 50,000 units of Coco @25 per unit, Strawberry 20,000 @ 20 per unit and Vanilla 60,000 units @ 15 per unit. The demand is sensitive to selling price it has been observed that every reduction at 1 per unit in selling price increases the demand for each product by 10% to the previous level. The company has the production capacity of 60,500 units of Coco, 24,200 units of Strawberry and 72,600 units of Vanilla. The company marks up 25% on cost of the product. The Company management decides to apply ABC analysis. For this purpose, it identifies four activities and the rate as follows: Activity Cost Rate Ordering 800 per purchase order Delivery 700 per delivery Shelf stocking 199 per hour Customer support and assistance 1.10 p.u sold The other relevant information for the products are as follows: Coco Strawberry Vanilla Particulars Direct Material p.u (2) 8 6 5 Direct Labour p.u (2) 5 4 3 No. of Purchase Orders 35 30 15 No. of Deliveries 112 66 48 Shelf Stocking Hours 130 150 160 Under the traditional costing system, store support costs are changed @ 30% of prime cost. In ABC these costs area coming under customer support and assistance. A. Calculate the total cost and unit cost of each product at the maximum level using traditional costing. B. Calculate the total cost and unit cost of each product at the maximum level using activity based costing. C. Compare the cost of each product calculated in (1) and (2) above and comment on it.
1. Quality Ltd. is engaged in production of three types of ice-cream products: Coco, Strawberry and Vanilla. The company presently sells 50,000 units of Coco @25 per unit, Strawberry 20,000 @ 20 per unit and Vanilla 60,000 units @ 15 per unit. The demand is sensitive to selling price it has been observed that every reduction at 1 per unit in selling price increases the demand for each product by 10% to the previous level. The company has the production capacity of 60,500 units of Coco, 24,200 units of Strawberry and 72,600 units of Vanilla. The company marks up 25% on cost of the product. The Company management decides to apply ABC analysis. For this purpose, it identifies four activities and the rate as follows: Activity Cost Rate Ordering 800 per purchase order Delivery 700 per delivery Shelf stocking 199 per hour Customer support and assistance 1.10 p.u sold The other relevant information for the products are as follows: Coco Strawberry Vanilla Particulars Direct Material p.u (2) 8 6 5 Direct Labour p.u (2) 5 4 3 No. of Purchase Orders 35 30 15 No. of Deliveries 112 66 48 Shelf Stocking Hours 130 150 160 Under the traditional costing system, store support costs are changed @ 30% of prime cost. In ABC these costs area coming under customer support and assistance. A. Calculate the total cost and unit cost of each product at the maximum level using traditional costing. B. Calculate the total cost and unit cost of each product at the maximum level using activity based costing. C. Compare the cost of each product calculated in (1) and (2) above and comment on it.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:1. Quality Ltd. is engaged in production of three types of ice-cream products: Coco, Strawberry and Vanilla.
The company presently sells 50,000 units of Coco @25 per unit, Strawberry 20,000 @ 20 per unit
and Vanilla 60,000 units @ 15 per unit. The demand is sensitive to selling price it has been observed that
every reduction at 1 per unit in selling price increases the demand for each product by 10% to the previous
level. The company has the production capacity of 60,500 units of Coco, 24,200 units of Strawberry and
72,600 units of Vanilla. The company marks up 25% on cost of the product.
The Company management decides to apply ABC analysis. For this purpose, it identifies four activities
and the rate as follows:
Activity
Cost Rate
Ordering
800 per purchase order
Delivery
700 per delivery
Shelf stocking
199 per hour
Customer support and assistance
1.10 p.u sold
The other relevant information for the products are as follows:
Coco Strawberry Vanilla
Particulars
Direct Material p.u (2)
8
6
5
Direct Labour p.u (2)
5
4
3
No. of Purchase Orders
35
30
15
No. of Deliveries
112
66
48
Shelf Stocking Hours
130
150
160
Under the traditional costing system, store support costs are changed @ 30% of prime cost. In ABC these
costs area coming under customer support and assistance.
A. Calculate the total cost and unit cost of each product at the maximum level using traditional costing.
B. Calculate the total cost and unit cost of each product at the maximum level using activity based costing.
C. Compare the cost of each product calculated in (1) and (2) above and comment on it.
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