ABC Ltd is a manufacturing company that makes only three products P, Q and R. Data for the period ended last month are as follows: Units produced and sold Sales price per unit Direct material cost per unit Direct labour cost per unit P 12,000 Sh. 50 16 8 Q 16,000 Sh. 70 24 12 R 8,000 Sh. 60 20 8 Production overheads costs Machining costs Production scheduling Set-up costs Quality control Receiving materials Packing materials Total Sh. 102,000 84,000 54,000 49,200 64,800 36,000 390,000 Cost drivers Machine hours Number of production runs Number of production runs Number of production runs No of components receipts Number of customer orders Information on the cost drivers is given as follows: P Q R Direct labour hours per unit Machine hours per unit Number of components per unit Number of components per receipt Number of customer orders Number of production runs 1 ½ 3 18 6 6 1½ 1 5 80 20 16 1 1½ 8 64 10 8 Required: Using activity based costing (ABC), show the cost and gross profit per unit for each product during the period.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
ABC Ltd is a manufacturing company that makes only three products P, Q and R. Data for the period ended last month are as follows:
|
Units produced and sold
Sales price per unit Direct material cost per unit Direct labour cost per unit |
P12,000
Sh. 50 16 8 |
Q16,000
Sh. 70 24 12 |
R8,000
Sh. 60 20 8 |
|
Production overheads costs Machining costs Production scheduling Set-up costs Quality control Receiving materials Packing materials |
TotalSh. 102,000 84,000 54,000 49,200 64,800 36,000 390,000 |
Cost drivers
Machine hours Number of production runs Number of production runs Number of production runs No of components receipts Number of customer orders |
Information on the cost drivers is given as follows:
|
|
P |
Q |
R |
|
Direct labour hours per unit Machine hours per unit Number of components per unit Number of components per receipt Number of customer orders Number of production runs |
1 ½ 3 18 6 6 |
1½ 1 5 80 20 16 |
1 1½ 8 64 10 8 |
Required:
Using activity based costing (ABC), show the cost and gross profit per unit for each product during the period.
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