Buckingham Star Company Ltd has a single production process for which the following have been estimated: £ Material receipts and inspection cost 31,200 Power cost 39,000 Material handling cost 27,300 Three products, Alpha, Beta, and Gamma are produced by workers, who perform a number of operations on material blanks using hand-held electrically powered drills. The workers have a wage rate of £4 per hour. The following budgeted information has been obtained for the period ending 31 December 2018 Alpha Beta Gamma Production quantity (units) 4000 3000 1600 Batches of material Data per product unit 20 10 32 Direct material (square metres) 8 12 6 Direct material (£) 10 6 12 Direct labour (minutes) 48 40 120 Number of power drill operations 12 6 4
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Buckingham Star Company Ltd has a single production process for which the following have been estimated:
|
|
£ |
|
Material receipts and inspection cost |
31,200 |
|
Power cost |
39,000 |
|
Material handling cost |
27,300 |
Three products, Alpha, Beta, and Gamma are produced by workers, who perform a number of operations on material blanks using hand-held electrically powered drills. The workers have a wage rate of £4 per hour.
The following budgeted information has been obtained for the period ending 31
December 2018
|
|
Alpha Beta Gamma |
|
|
Production quantity (units) |
4000 3000 |
1600 |
|
Batches of material Data per product unit |
20 10 |
32 |
|
Direct material (square metres) |
8 12 |
6 |
|
Direct material (£) |
10 6 |
12 |
|
Direct labour (minutes) |
48 40 |
120 |
|
Number of power drill operations |
12 6 |
4 |
Overhead costs for material receipt and inspection, process power and material handling are presently each absorbed by product units using rates per direct labour hour.
An activity-based costing investigation has revealed that the cost drivers for the overhead costs are as follows
Material Receipt and inspection number of batches of material
Process power number of drill operations
Material handling quantity of material (square metres) handles Required:
- Calculate total and cost per unit for each product under Traditional Absorption costing
- Calculate total and cost per unit for each product under Activity Based costing
- Compare Absorption costing and Activity based costing cost per unit and suggest the best approach to product costing
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