Green Valley Private co. is a recycled plastic bag manufacturing company. It produces two different products, shopping bags and sack bags. Details of the cost of production for both products are given as follows. (Shopping bags) (Sack bags) Unit produced and sold. 12,000 units 22,000 units Selling Price $27 per unit $30 per unit Raw materials $8 per unit $10 per unit Direct labour $4 per hour $5 per unit Machine hours 4 hours per unit 8 hours per unit Labour hours 5 hours per unit 6 hours per unit Set ups 58 86 Customer orders 1600 4400 Purchase orders 1000 1800 Cost Pool Amount ($) Set -up costs 5,184 Processing orders (Customer) 19,320 Procurement costs (Purchase) 11,816 Machine services 70,000 (Driver – Machine hours) Assembling Department 52,000 (Driver – Labour hours) Required i.Prepare statement of profit for both products using the activity-based costing method. Discuss any three limitations of ABC costing method.
Green Valley Private co. is a recycled plastic bag manufacturing company. It produces two different products, shopping bags and sack bags. Details of the cost of production for both products are given as follows.
(Shopping bags) (Sack bags)
Unit produced and sold. 12,000 units 22,000 units
Selling Price $27 per unit $30 per unit
Raw materials $8 per unit $10 per unit
Direct labour $4 per hour $5 per unit
Machine hours 4 hours per unit 8 hours per unit
Labour hours 5 hours per unit 6 hours per unit
Set ups 58 86
Customer orders 1600 4400
Purchase orders 1000 1800
Cost Pool Amount ($)
Set -up costs 5,184
Processing orders (Customer) 19,320
Procurement costs (Purchase) 11,816
Machine services 70,000 (Driver – Machine hours)
Assembling Department 52,000 (Driver – Labour hours)
Required
i.Prepare statement of profit for both products using the activity-based costing method.
- Discuss any three limitations of ABC costing method.
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