Required: a) Calculate the profit per unit for the three products based on the company's current labour hours based overhead method. b) Calculate the profit per unit for the three products using the principles of ABC c) Comment on the comparative overhead cost per unit for the two products under ABC, and the comparative total costs per unit under traditional costing and ABC and Explain your reasons for choosing the bases of overhead allocation

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Activity Base Costing (ABC)
Gulf Mining LLC produces three diferent products and sells them in bulk to smaller retailers. It's managers are concerned that the company's profit is not as
high as its competitors. They believe they fall in profits could be caused due to the company's uncompetitive selling price(s), for one or more product, and losses
on other products. Details of the company's costs and selling prices are as follows;
Products
Selling Price
Direct Costs
Labour
Direct Material - Aqua
(Water)
Total Direct Cost
Units produced
Activities associated with the overheads are:
Financial Management
Financial Management-1/Aut
Face-Pack
OMR
90
10
Hand-gel
OMR
120
Details
Depreciation
Purchasing Expenses
Direct Material - Aqua (Water) delivery
inspection costs
Labour hours
Currently the company uses the traditional method of allocating indirect overheads but is considering using the ABC method for increasing the accuracy. The
company's indirect overheads are as follows:
24
28
200
3000
2 hours per 2 hours per 3 hours per
unit
unit
unit
Number of suppliers
Component deliveries per month
Production runs per month
No. of employees
Value of machinery
Direct Material - other delivery inspection costs
Set-up costs
Canteen expenses
BSAC2502/BAF2100/210
10
Face-gel
8
6
16
12
2000
Hair-gel
OMR
140
20
16
60
1600
OMR
4200
2400
800
1800
1632
5000
6
20
18
3000
Hand-gel
10
Hair-gel
6
4
12
10
1000
Required:
a) Calculate the profit per unit for the three products based on the company's current labour hours based overhead method.
b) Calculate the profit per unit for the three products using the principles of ABC
Semeder-Spring-2022-25
Page 5 of 6
c) Comment on the comparative overhead cost per unit for the two products under ABC, and the comparative total costs per unit under traditional costing
and ABC and Explain your reasons for choosing the bases of overhead allocation
Transcribed Image Text:Activity Base Costing (ABC) Gulf Mining LLC produces three diferent products and sells them in bulk to smaller retailers. It's managers are concerned that the company's profit is not as high as its competitors. They believe they fall in profits could be caused due to the company's uncompetitive selling price(s), for one or more product, and losses on other products. Details of the company's costs and selling prices are as follows; Products Selling Price Direct Costs Labour Direct Material - Aqua (Water) Total Direct Cost Units produced Activities associated with the overheads are: Financial Management Financial Management-1/Aut Face-Pack OMR 90 10 Hand-gel OMR 120 Details Depreciation Purchasing Expenses Direct Material - Aqua (Water) delivery inspection costs Labour hours Currently the company uses the traditional method of allocating indirect overheads but is considering using the ABC method for increasing the accuracy. The company's indirect overheads are as follows: 24 28 200 3000 2 hours per 2 hours per 3 hours per unit unit unit Number of suppliers Component deliveries per month Production runs per month No. of employees Value of machinery Direct Material - other delivery inspection costs Set-up costs Canteen expenses BSAC2502/BAF2100/210 10 Face-gel 8 6 16 12 2000 Hair-gel OMR 140 20 16 60 1600 OMR 4200 2400 800 1800 1632 5000 6 20 18 3000 Hand-gel 10 Hair-gel 6 4 12 10 1000 Required: a) Calculate the profit per unit for the three products based on the company's current labour hours based overhead method. b) Calculate the profit per unit for the three products using the principles of ABC Semeder-Spring-2022-25 Page 5 of 6 c) Comment on the comparative overhead cost per unit for the two products under ABC, and the comparative total costs per unit under traditional costing and ABC and Explain your reasons for choosing the bases of overhead allocation
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