Question 1: The Aseel Co. produces 3 products, A, B and C. All are made from the same materials. The company used to use the traditional absorption costing. The company now want to consider the activity-based costing system in order to improve the profitability. The Information for the three products are as following: B 12,000 12 C 18,000 13 Production and sales volumes (units) Selling price per unit (OMR) Raw material usage (Kg) per unit Direct labor hours per unit Machine hours per unit Number of productions runs per year Number of purchase orders per year Number of deliveries to retailers per year 15,000 7.500 2 3 0.1 0.15 0.2 0.5 0.7 12 28 30 0.9 16 24 42 48 62 The price of the raw material remains constant throughout the year at OMR 1.200 per Kg. Similarly, the direct labor cost for the whole workers is OMR 14.00 per hour. The annual overhead cost will be as following: OVERHEADS OMR Machine Setup costs Machine running costs Procurement Costs Delivery Costs 26,550 66,400 48,000 54.320 Required: (a) Calculate the full cost per unit for products A, B and Cunder traditional absorption costing, using direct labor hours as the basis for apportionment. (b) Calculate the full cost per unit of each product using activity-based costing.
Question 1: The Aseel Co. produces 3 products, A, B and C. All are made from the same materials. The company used to use the traditional absorption costing. The company now want to consider the activity-based costing system in order to improve the profitability. The Information for the three products are as following: B 12,000 12 C 18,000 13 Production and sales volumes (units) Selling price per unit (OMR) Raw material usage (Kg) per unit Direct labor hours per unit Machine hours per unit Number of productions runs per year Number of purchase orders per year Number of deliveries to retailers per year 15,000 7.500 2 3 0.1 0.15 0.2 0.5 0.7 12 28 30 0.9 16 24 42 48 62 The price of the raw material remains constant throughout the year at OMR 1.200 per Kg. Similarly, the direct labor cost for the whole workers is OMR 14.00 per hour. The annual overhead cost will be as following: OVERHEADS OMR Machine Setup costs Machine running costs Procurement Costs Delivery Costs 26,550 66,400 48,000 54.320 Required: (a) Calculate the full cost per unit for products A, B and Cunder traditional absorption costing, using direct labor hours as the basis for apportionment. (b) Calculate the full cost per unit of each product using activity-based costing.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Question 1:
The Aseel Co. produces 3 products, A, B and C. All are made from the same materials.
The company used to use the traditional absorption costing. The company now want to
consider the activity-based costing system in order to improve the profitability. The
Information for the three products are as following:
B
C
18,000
Production and sales volumes (units)
Selling price per unit (OMR)
Raw material usage (Kg) per unit
Direct labor hours per unit
Machine hours per unit
Number of productions runs per year
Number of purchase orders per year
Number of deliveries to retailers per year
15,000
7.500
12,000
12
13
3
4
0.1
0.15
0.2
0.5
0.7
0.9
16
12
28
30
24
42
48
62
The price of the raw material remains constant throughout the year at OMR 1.200
per Kg. Similarly, the direct labor cost for the whole workers is OMR 14.00 per
hour. The annual overhead cost will be as following:
OVERHEADS
OMR
Machine Setup costs
Machine running costs
Procurement Costs
Delivery Costs
26,550
66.400
48,000
54.320
Required:
(a) Calculate the full cost per unit for products A, B and C under traditional
absorption costing, using direct labor hours as the basis for apportionment.
(b) Calculate the full cost per unit of each product using activity-based costing.
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