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
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.
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb4d17e5e-cb92-4fba-a042-7d762deedb01%2Fed78078f-3458-44e6-8b0d-9753d9963f92%2Fimweuke_processed.jpeg&w=3840&q=75)
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