(i) Select a suitable cost driver for each item of overhead expenses and calculate the cost per unit of cost driver. (ii) Using the concept of Activity Based Costing, compute the factory cost per unit of each product.
(i) Select a suitable cost driver for each item of overhead expenses and calculate the cost per unit of cost driver. (ii) Using the concept of Activity Based Costing, compute the factory cost per unit of each product.
(i) Select a suitable cost driver for each item of overhead expenses and calculate the cost per unit of cost driver. (ii) Using the concept of Activity Based Costing, compute the factory cost per unit of each product.
(i) Select a suitable cost driver for each item of overhead expenses and calculate the cost per unit of cost driver. (ii) Using the concept of Activity Based Costing, compute the factory cost per unit of each product.
Transcribed Image Text:Question 1
A company produces four products, viz. P, Q, R and S. The data relating to production activity are as
under:
Quantity of
production
Direct labour Machine hours/ Direct Labour
unit
Material cost/
Product
unit RM
hours/unit
cost/unit
RM
1,000
10
0.50
6
Q
0.50
10,000
1,200
14,000
10
1
R
32
4
2.00
24
S
34
3
3.00
18
Production overheads are as under:
RM
(1) Overheads applicable to machine oriented activity:
(i) Overheads relating to ordering materials
(ii) Set up costs
1,49,700
7,680
17,400
(iv) Administration overheads for spare parts
34,380
(v) Material handling costs
30,294
The following further information have been compiled:
No. of materials
No. of times
Product
No. of set up
No. of spare parts
orders
3
materials handled
3
6
6
Q
18
12
30
15
R
5
3
24
12
36
12
Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.
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