Question 3 (12 marks) Grass & Go Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated based on direct labour hours. The following information was collected at the end of 2022. Annual sales. Selling price Direct material cost per unit Direct labour cost per unit Overhead cost per unit Standard 36,250 units $650 $90 $200 $90 Following an examination of the data above the marketing manager recommended that more emphasis should be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing manager and suggested that an activity-based costing system should be installed. Overhead activity Setups Machining Engineering Packing The general manager asked the management accountant to recalculate the product costs using ABC techniques. The management accountant subsequently collected the following information. Overhead cost $112,500 $2,500,000 $960,000 $540,000 Cost driver Deluxe 8,500 units $850 $200 $250 $100 Number of setups Machine hours Engineering hours Packing orders Standard 25 setups 65,000 hours 36,000 hours 29,000 orders Deluxe 20 setups 35,000 hours 24,000 hours 7,000 orders Required: (a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines.
Question 3 (12 marks) Grass & Go Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated based on direct labour hours. The following information was collected at the end of 2022. Annual sales. Selling price Direct material cost per unit Direct labour cost per unit Overhead cost per unit Standard 36,250 units $650 $90 $200 $90 Following an examination of the data above the marketing manager recommended that more emphasis should be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing manager and suggested that an activity-based costing system should be installed. Overhead activity Setups Machining Engineering Packing The general manager asked the management accountant to recalculate the product costs using ABC techniques. The management accountant subsequently collected the following information. Overhead cost $112,500 $2,500,000 $960,000 $540,000 Cost driver Deluxe 8,500 units $850 $200 $250 $100 Number of setups Machine hours Engineering hours Packing orders Standard 25 setups 65,000 hours 36,000 hours 29,000 orders Deluxe 20 setups 35,000 hours 24,000 hours 7,000 orders Required: (a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 3
(12 marks)
Grass & Go Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated
based on direct labour hours. The following information was collected at the end of 2022.
Annual sales
Selling price
Direct material cost per unit
Direct labour cost per unit
Overhead cost per unit
Following an examination of the data above the marketing manager recommended that more emphasis should
be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were
problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing
manager and suggested that an activity-based costing system should be installed.
Overhead
activity
Setups
Standard
36,250 units
$650
$90
$200
$90
The general manager asked the management accountant to recalculate the product costs using ABC techniques.
The management accountant subsequently collected the following information.
Cost driver
Number of setups
Machine hours
Machining
Engineering
Packing
Overhead
cost
$112,500
$2,500,000
$960,000
$540,000
Deluxe
8,500 units
$850
$200
$250
$100
Engineering hours
Packing orders
Standard
25 setups
65,000 hours
36,000 hours
29,000 orders
Deluxe
20 setups
35,000 hours
24,000 hours
7,000 orders
Required:
(a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines.
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