Question 2 A. B. C. How does Activity-Based Costing differ from traditional costing? Identify any TWO (2) advantages and any TWO (2) limitations of Activity-Based Costing. (4 marks) McNish Enterprise manufactures and sells two products, Standard and Premium. The company uses the activity-based costing system to allocate its overhead costs. The following information has been collected relating to the SIX (6) overhead activities: Activity Purchase Orders Quality Control Material Handling Setup Cost Cost $ 400 500 $ 275 000 $ 150 000 $ 50 000 $ 125 000 $ 240 000 $1240 500 The activity-based usage quantities for each product are as follows: Production Scheduling Procurement Number of Setups Orders 900 1 600 (2 marks) Number of Inspection 500 500 Number of Orders Executed Standard 300 750 Premium 200 1 250 Total 500 2.500 2 000 1 000 The company produces 5 000 units of Standard and 4 000 units of Premium calculated in (i.) above. iii. Calculate the unit cost for each product. Required: i. Calculate the activity rate for each activity. ii. Calculate the total overhead cost assigned to each product based on rates Number of Production Use 450 350 800 (9 marks) (12 marks) (3 marks)
Question 2 A. B. C. How does Activity-Based Costing differ from traditional costing? Identify any TWO (2) advantages and any TWO (2) limitations of Activity-Based Costing. (4 marks) McNish Enterprise manufactures and sells two products, Standard and Premium. The company uses the activity-based costing system to allocate its overhead costs. The following information has been collected relating to the SIX (6) overhead activities: Activity Purchase Orders Quality Control Material Handling Setup Cost Cost $ 400 500 $ 275 000 $ 150 000 $ 50 000 $ 125 000 $ 240 000 $1240 500 The activity-based usage quantities for each product are as follows: Production Scheduling Procurement Number of Setups Orders 900 1 600 (2 marks) Number of Inspection 500 500 Number of Orders Executed Standard 300 750 Premium 200 1 250 Total 500 2.500 2 000 1 000 The company produces 5 000 units of Standard and 4 000 units of Premium calculated in (i.) above. iii. Calculate the unit cost for each product. Required: i. Calculate the activity rate for each activity. ii. Calculate the total overhead cost assigned to each product based on rates Number of Production Use 450 350 800 (9 marks) (12 marks) (3 marks)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 2
A.
B.
C.
How does Activity-Based Costing differ from traditional costing?
Identify any TWO (2) advantages and any TWO (2) limitations of Activity-Based
Costing.
(4 marks)
McNish Enterprise manufactures and sells two products, Standard and Premium. The
company uses the activity-based costing system to allocate its overhead costs. The
following information has been collected relating to the SIX (6) overhead activities:
Activity
Purchase Orders
Quality Control
Material Handling
Setup Cost
Cost
$ 400 500
$ 275 000
$ 150 000
$ 50 000
$ 125 000
$ 240 000
$1240 500
The activity-based usage quantities for each product are as follows:
Production Scheduling
Procurement
Number of
Setups
Orders
900
1 600
(2 marks)
Number of
Inspection
500
500
Number of Orders
Executed
Standard 300
750
Premium 200
1 250
Total
500
2.500
2 000
1 000
The company produces 5 000 units of Standard and 4 000 units of Premium
calculated in (i.) above.
iii. Calculate the unit cost for each product.
Required:
i. Calculate the activity rate for each activity.
ii. Calculate the total overhead cost assigned to each product based on rates
Number of
Production Use
450
350
800
(9 marks)
(12 marks)
(3 marks)
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