ABC limited produces three products at Kariobangi light industries in Nairobi. The following information provide details of the costs, volume and transaction cost drivers for year 2020. Particulars A B C Number of units produced 90,000 30,000 15,000 Direct material (Ksh) 30,000 40,000 15,000 Direct labour (Ksh) 20,000 30,000 10,000 Machine hours per unit (hours) 5 3 7.5 Direct labour hours per unit (hours) 2.5 3 1.5 Number of production setups 5 10 50 Number of packaged deliveries 18 7 50 Number of stores receipts 50 70 700 Number of Engineering orders 45 25 60 The overhead costs are currently absorbed by using a direct labour hour rate and the total of the production overhead for the period has been analysed as follows: Particulars Amount (Ksh) Machining costs 1,000,000 Setup costs 75,000 Stores receiving costs 900,000 Packaging costs 650,000 Engineering costs 750,000 Total 3,375,000 Required An analysis of total costs for each product if all overhead costs are absorbed on a direct labour hour basis Using appropriate cost drivers present an analysis of total costs for each product using activity based costing Comment on the differences between the results obtained in (i) and (ii) above
ABC limited produces three products at Kariobangi light industries in Nairobi. The following information provide details of the costs, volume and transaction cost drivers for year 2020. Particulars A B C Number of units produced 90,000 30,000 15,000 Direct material (Ksh) 30,000 40,000 15,000 Direct labour (Ksh) 20,000 30,000 10,000 Machine hours per unit (hours) 5 3 7.5 Direct labour hours per unit (hours) 2.5 3 1.5 Number of production setups 5 10 50 Number of packaged deliveries 18 7 50 Number of stores receipts 50 70 700 Number of Engineering orders 45 25 60 The overhead costs are currently absorbed by using a direct labour hour rate and the total of the production overhead for the period has been analysed as follows: Particulars Amount (Ksh) Machining costs 1,000,000 Setup costs 75,000 Stores receiving costs 900,000 Packaging costs 650,000 Engineering costs 750,000 Total 3,375,000 Required An analysis of total costs for each product if all overhead costs are absorbed on a direct labour hour basis Using appropriate cost drivers present an analysis of total costs for each product using activity based costing Comment on the differences between the results obtained in (i) and (ii) above
ABC limited produces three products at Kariobangi light industries in Nairobi. The following information provide details of the costs, volume and transaction cost drivers for year 2020. Particulars A B C Number of units produced 90,000 30,000 15,000 Direct material (Ksh) 30,000 40,000 15,000 Direct labour (Ksh) 20,000 30,000 10,000 Machine hours per unit (hours) 5 3 7.5 Direct labour hours per unit (hours) 2.5 3 1.5 Number of production setups 5 10 50 Number of packaged deliveries 18 7 50 Number of stores receipts 50 70 700 Number of Engineering orders 45 25 60 The overhead costs are currently absorbed by using a direct labour hour rate and the total of the production overhead for the period has been analysed as follows: Particulars Amount (Ksh) Machining costs 1,000,000 Setup costs 75,000 Stores receiving costs 900,000 Packaging costs 650,000 Engineering costs 750,000 Total 3,375,000 Required An analysis of total costs for each product if all overhead costs are absorbed on a direct labour hour basis Using appropriate cost drivers present an analysis of total costs for each product using activity based costing Comment on the differences between the results obtained in (i) and (ii) above
ABC limited produces three products at Kariobangi light industries in Nairobi. The following information provide details of the costs, volume and transaction cost drivers for year 2020.
Particulars
A
B
C
Number of units produced
90,000
30,000
15,000
Direct material (Ksh)
30,000
40,000
15,000
Direct labour (Ksh)
20,000
30,000
10,000
Machine hours per unit (hours)
5
3
7.5
Direct labour hours per unit (hours)
2.5
3
1.5
Number of production setups
5
10
50
Number of packaged deliveries
18
7
50
Number of stores receipts
50
70
700
Number of Engineering orders
45
25
60
The overhead costs are currently absorbed by using a direct labour hour rate and the total of the production overhead for the period has been analysed as follows:
Particulars
Amount (Ksh)
Machining costs
1,000,000
Setup costs
75,000
Stores receiving costs
900,000
Packaging costs
650,000
Engineering costs
750,000
Total
3,375,000
Required
An analysis of total costs for each product if all overhead costs are absorbed on a direct labour hour basis
Using appropriate cost drivers present an analysis of total costs for each product using activity based costing
Comment on the differences between the results obtained in (i) and (ii) above
Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.
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