The information and data in Tables 1, 2, and 3 will be used to determine cost drivers and calculate overheads. Table 1 (Product information) X Y ZHigh volumeMedium volumeLow volumeLarge batchesMedium batchesLow batchesFew purchaseOrders placedMedium purchaseOrders placedMany purchaseOrders placedFew customerOrders placedMedium customerOrders placedMany customerOrders placed Table 2 (Product Information) X YZTotalTypical batch size2000600325 No. of production runs255050125No. of inspections255050125Purchase orders placed25100200325Customer orders received10100200310 Table 3 Analysis of indirect labour K'000K'000Machining: Supervision100 Set-up400 Quality control400 Subtotal 900 Assembly: Supervision200 Quality control400 Subtotal 600 Purchasing/ order processing: Resource procurement300 Customer liaison/expediting300 Subtotal 600 Factory management: General administration 100Grandtotal 2,200Requirement(a) Prepare an ABC analysis and calculate product costs.(b) Discuss the strengths and weaknesses associated with the implementation of the ABC Technique, providing relevant examples from part (a) above.

ABC (Activity Based Costing) is a technique used to allocate overhead costs to products or services…

Answered: equirement (a) Prepare an ABC analysis…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The information and data in Tables 1, 2, and 3 will be used to determine cost drivers and calculate overheads.

Table 1 (Product information)

X	Y	Z
High volume	Medium volume	Low volume
Large batches	Medium batches	Low batches
Few purchase Orders placed	Medium purchase Orders placed	Many purchase Orders placed
Few customer Orders placed	Medium customer Orders placed	Many customer Orders placed

Table 2 (Product Information)

	X	Y	Z	Total
Typical batch size	2000	600	325
No. of production runs	25	50	50	125
No. of inspections	25	50	50	125
Purchase orders placed	25	100	200	325
Customer orders received	10	100	200	310

Table 3
Analysis of indirect labour

		K'000	K'000
Machining:
	Supervision	100
	Set-up	400
	Quality control	400
Subtotal			900

Assembly:
	Supervision	200
	Quality control	400

Subtotal			600

Purchasing/ order processing:
	Resource procurement	300
	Customer liaison/expediting	300
Subtotal			600

Factory management:
	General administration		100
Grandtotal			2,200

Requirement
(a) Prepare an ABC analysis and calculate product costs.

(b) Discuss the strengths and weaknesses associated with the implementation of the ABC Technique, providing relevant examples from part (a) above.

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