Question I Trimake Limited makes three main products, using broadly the same production methods and equipment for each. A conventional product costing system is used at present, although an activity-based costing (ABC) system is being considered. Details of the three products for a typical period are: Product X Product Y Product Z Hours per unit Labour hours ½ 1½ 1 Product X Product Y Product Z Costs relating to setups Costs relating to machinery Costs relating to materials handling Costs relating to inspection Total production overhead Machine unit 1½ 1 3 Direct labour costs £14 per hour and production overheads are absorbed on a machine-hour basis. The rate for the period is £28 per machine hour. a) You are required to calculate the cost per unit for each product using conventional methods. Further analysis shows that the total of production overheads can be divided as follows: Number of set-ups 75 115 480 670 The following activity volumes are associated with the product line for the period as a whole. Total activities for the period: Materials per unit £ 20 12 25 Number of movements of materials 12 21 87 120 % 35 20 15 30 100 Volumes Units 750 1250 7000 Number of inspections 150 180 670 1,000 Required: b) Calculate the cost per unit for each product using ABC principles. c) Comment on the reasons for any differences in the costs in your answers to (a) and (b).
Question I Trimake Limited makes three main products, using broadly the same production methods and equipment for each. A conventional product costing system is used at present, although an activity-based costing (ABC) system is being considered. Details of the three products for a typical period are: Product X Product Y Product Z Hours per unit Labour hours ½ 1½ 1 Product X Product Y Product Z Costs relating to setups Costs relating to machinery Costs relating to materials handling Costs relating to inspection Total production overhead Machine unit 1½ 1 3 Direct labour costs £14 per hour and production overheads are absorbed on a machine-hour basis. The rate for the period is £28 per machine hour. a) You are required to calculate the cost per unit for each product using conventional methods. Further analysis shows that the total of production overheads can be divided as follows: Number of set-ups 75 115 480 670 The following activity volumes are associated with the product line for the period as a whole. Total activities for the period: Materials per unit £ 20 12 25 Number of movements of materials 12 21 87 120 % 35 20 15 30 100 Volumes Units 750 1250 7000 Number of inspections 150 180 670 1,000 Required: b) Calculate the cost per unit for each product using ABC principles. c) Comment on the reasons for any differences in the costs in your answers to (a) and (b).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 1
Trimake Limited makes three main products, using broadly the same production methods and equipment for
each. A conventional product costing system is used at present, although an activity-based costing (ABC)
system is being considered. Details of the three products for a typical period are:
Product X
Product Y
Product Z
Hours per unit
Labour
hours
½
1½
1
Product X
Product Y
Product Z
Costs relating to setups
Costs relating to machinery
Costs relating to materials handling
Costs relating to inspection
Total production overhead
Required:
Machine
unit
1½
1
3
Direct labour costs £14 per hour and production overheads are absorbed on a machine-hour basis. The rate
for the period is £28 per machine hour.
a) You are required to calculate the cost per unit for each product using conventional methods.
Further analysis shows that the total of production overheads can be divided as follows:
Number
of set-ups
75
115
480
670
The following activity volumes are associated with the product line for the period as a whole. Total
activities for the period:
Materials
per unit £
20
12
25
Number of
movements
of materials
12
21
87
120
%
35
20
15
30
100
Volumes
Units
Number of
inspections
750
1250
7000
150
180
670
1,000
b) Calculate the cost per unit for each product using ABC principles.
c) Comment on the reasons for any differences in the costs in your answers to (a) and (b).
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