a.Produce a statement that shows the overhead split using the original method and showing the amount per unit produced. b. Produce a statement showing the overhead split using Activity Based Costing. Show the amount per unit produced. c.Explain the difference between the two methods and the difference in cost per unit. d.Discuss the advantages and disadvantages of the two methods and the likely outcomes for Payne Ltd if they were to change to the ABC method of overhead allocation. e.Next year the company hope to introduce a new product, the purple variety. Initially the number of sales are expected to be low and they ask you for an indication of how this new product might affect the allocation of overheads to the existing products.
Plain Limited produces two standard products, White and Grey. You have recently been appointed as a
The company currently absorbs
The current expected output for the existing products during the next year is White 15,000 and Grey 12,000
The company has also provided the following information about the current overhead costs of the business;
Overhead activity. Annual costs Cost driver. Amount of activity
White Grey
Production £129,800 Machine hours 1260 1100
Quality inspection £58,080 No. of production runs 80 30
Material purchased. £71,820 Purchase orders 30 12
Deliveries to retailers £18,080 Shipments 20 12
a.Produce a statement that shows the overhead split using the original method
and showing the amount per unit produced.
b. Produce a statement showing the overhead split using Activity Based Costing.
Show the amount per unit produced.
c.Explain the difference between the two methods and the difference in cost per
unit.
d.Discuss the advantages and disadvantages of the two methods and the likely
outcomes for Payne Ltd if they were to change to the ABC method of
overhead allocation.
e.Next year the company hope to introduce a new product, the purple variety.
Initially the number of sales are expected to be low and they ask you for an
indication of how this new product might affect the allocation of overheads to
the existing products.
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