Using the information calculate the following,1. The manufacturing costs per unit and the total manufacturing costs, if all the overhead costs are absorbed on a machine hour basis.2. The overheads costs per unit using the ABC system INFORMATIONVisa Limited manufactures two products and the company is keen on applying the principles of activity-basedcosting (ABC). Relevant information pertaining to the two products for a given period appear belowProduct A Product BOutput in unitsMachine hours per unitDirect materials cost per unitDirect labour cost per unitMachine department costs (rent, rates, depreciation and supervision)Set-up costsStores receivingThe two products are similar and are usually produced in production runs of 20 units and sold in batches of 10.Currently the production overheads are absorbed by using a machine hour rate, and the total of the productionoverheads for the period are as follows:Inspection/Quality controlMaterials handling and dispatch7207R300R147The cost drivers (in random order) to be used for the overhead costs are as follows.Orders executedNumber of production runs (used twice)Requisitions raisedMachine hours5405R240R105R30 96015 12011 1606 30013 860The number of requisitions raised on the stores was 120 for each product and the number of orders executedwas 126, each order being for a batch of 10 of a product

Activity Based Costing (ABC Costing)Under the ABC Costing overheads are allocated on the basis of…

INFORMATION Visa Limited manufactures two products and the company is keen on applying the principles of activity-based costing (ABC) Relevant information pertaining to the two products for a given period appear below. Product A Product B 540 5 R240 R105 Output in units Machine hours per unit Direct materials cost per unit Direct labour cost per unit 720 7 R300 R147 The two products are similar and are usually produced in production runs of 20 units and sold in batches of 10. Currently the production overheads are absorbed by using a machine hour rate, and the total of the production overheads for the period are as follows: Machine department costs (rent, rates, depreciation and supervision) Set-up costs Stores receiving Inspection Quality control Materials handling and dispatch The cost drivers (in random order) to be used for the overhead costs are as follows. Orders executed Number of production runs (used twice) Requisitions raised Machine hours R 30 960 15 120 11 160 6300 13 860 The number of requisitions raised on the stores was 120 for each product and the number of orders executed was 126, each order being for a batch of 10 of a product

INFORMATION Visa Limited manufactures two products and the company is keen on applying the principles of activity-based costing (ABC) Relevant information pertaining to the two products for a given period appear below. Product A Product B 540 5 R240 R105 Output in units Machine hours per unit Direct materials cost per unit Direct labour cost per unit 720 7 R300 R147 The two products are similar and are usually produced in production runs of 20 units and sold in batches of 10. Currently the production overheads are absorbed by using a machine hour rate, and the total of the production overheads for the period are as follows: Machine department costs (rent, rates, depreciation and supervision) Set-up costs Stores receiving Inspection Quality control Materials handling and dispatch The cost drivers (in random order) to be used for the overhead costs are as follows. Orders executed Number of production runs (used twice) Requisitions raised Machine hours R 30 960 15 120 11 160 6300 13 860 The number of requisitions raised on the stores was 120 for each product and the number of orders executed was 126, each order being for a batch of 10 of a product

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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Question

Using the information calculate the following,
1. The manufacturing costs per unit and the total manufacturing costs, if all the overhead costs are absorbed on a machine hour basis.
2. The overheads costs per unit using the ABC system

INFORMATION
Visa Limited manufactures two products and the company is keen on applying the principles of activity-based
costing (ABC). Relevant information pertaining to the two products for a given period appear below
Product A Product B
Output in units
Machine hours per unit
Direct materials cost per unit
Direct labour cost per unit
Machine department costs (rent, rates, depreciation and supervision)
Set-up costs
Stores receiving
The two products are similar and are usually produced in production runs of 20 units and sold in batches of 10.
Currently the production overheads are absorbed by using a machine hour rate, and the total of the production
overheads for the period are as follows:
Inspection/Quality control
Materials handling and dispatch
720
7
R300
R147
The cost drivers (in random order) to be used for the overhead costs are as follows.
Orders executed
Number of production runs (used twice)
Requisitions raised
Machine hours
540
5
R240
R105
R
30 960
15 120
11 160
6 300
13 860
The number of requisitions raised on the stores was 120 for each product and the number of orders executed
was 126, each order being for a batch of 10 of a product

Definition Definition Total cost of procuring or producing a product or the cost that an individual or business owner undertakes for the manufacturing of goods.

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Step 1: Define Activity Based Costing (ABC Costing)

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Step 2: Computation of Manufacturing cost and manufacturing cost per unit under machine hour rate

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Step 3: Computation of Overhead cost per unit Using ABC

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