4.0 Having attended a NBAA course on activity -based costing (ABC) you decided to experiment by applyin 9 the principles of ABC to the four products currently made and sold by your company. Details of the four products and relevant information are given below for one period: Product A B D Output in units 120 100 80 120 Costs per unit Shs. Shs. Shs. Shs. Direct material 40 50 30 60 Direct Labour 28 21 14 21 Machine hours(per unit) 4 3 2 3 The four products are similar and usually produced in production run of 20 units and sold in batches of 10 units The production overhead is currently absorbed by using a machine hour rate, and the total of the productio n overhead for the period has been analyzed as follows: Tshs Machine department costs (rent, business rates, depreciation and supervision). 10,430 Set-ups costs--- 5,2 50 Stores receiving 3,60 0 Inspection /Quality control 2,10 0 Material handling and dispatch 4,620 You have ascertained that the cost 'drivers' to be used are as listed below for the overhead costs shown: Cost Cost driver Set up costs Stores receiving Inspection/ quality control Materials handling and dispatch Number of production runs Requisition raised Number of production runs Orders executed The number of requisitions raised on the stores was 20 for each product and the number of orders execute d was 42, each being for a batch of a product. You are required lal to calculate the total costs for each product if all overhead costs are absorbed on a machine hour ba sis (b) to calculate the total costs for each product using activity -based costing (c) to calculate and List the unit product costs from your figures in (a) and (b) above, to show the differ ences and to comment briefly on any conclusions which may be drawn which could have pricing and profi t implications
4.0 Having attended a NBAA course on activity -based costing (ABC) you decided to experiment by applyin 9 the principles of ABC to the four products currently made and sold by your company. Details of the four products and relevant information are given below for one period:
Product
A
B
D
Output in units
120
100
80
120
Costs per unit
Shs.
Shs.
Shs. Shs.
Direct material
40
50
30
60
Direct Labour
28
21
14
21
Machine hours(per unit)
4
3
2
3
The four products are similar and usually produced in production run of 20 units and sold in batches of 10 units
The production
n overhead for the period has been analyzed as follows:
Tshs
Machine department costs (rent, business rates,
10,430
Set-ups costs---
5,2
50
Stores receiving
3,60
0
Inspection /Quality control
2,10
0
Material handling and dispatch
4,620
You have ascertained that the cost 'drivers' to be used are as listed below for the overhead costs shown:
Cost
Cost driver
Set up costs
Stores receiving
Inspection/ quality control
Materials handling and dispatch
Number of production runs
Requisition raised
Number of production runs
Orders executed
The number of requisitions raised on the stores was 20 for each product and the number of orders execute
d was 42, each being for a batch of a product. You are required
lal to calculate the total costs for each product if all overhead costs are absorbed on a machine hour ba
sis
(b) to calculate the total costs for each product using activity -based costing
(c) to calculate and List the unit product costs from your figures in (a) and (b) above, to show the differ ences and to comment briefly on any conclusions which may be drawn which could have pricing and profi t implications
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