Requirement: 3) Compute the unit factory cost using the traditional absorption costing system. b) Compute the unit factory cost using an activity based costing system. c) Compare unit factory cost unit using tradition absorption costing with activity based costing (ABC); and explain the impact of ABC on product pricing
The following budgeted information relates to Wala-Wala Limited:
| x | y | z | |
| Prime cost (per unit) | 16 | 42 | 32.5 |
| Production (units) | 25 000 | 20 000 | 15 000 |
Other data:
| Hours | Hours | Hours | |
| Machine department ( machine hours per unit) | 1 | 2.5 | 2 |
| Assembly department (direct labour hours per unit) | 3.5 | 1.5 | 1 |
The existing practice is that machine department
and all other overheads are allocated to individual products based on NSl.65 per direct labour hour
You ascertain that the above overheads could be re-analysed into ”cost pools” as follows:
| cost pool | N$ |
| machine services | 178 500 |
| assembly services | 159 000 |
| set-up costs | 13 500 |
| order processing | 78 000 |
| purchasing orders | 42 000 |
| 471 000 |
You have also been provided with the following estimates for the period:
Products
| x | y | z | |
| number of set-ups | 50 | 100 | 100 |
| customer orders | 4000 | 4000 | 8000 |
| supplier's orders | 1500 | 2000 | 2100 |
Requirement:
3) Compute the unit
b) Compute the unit factory cost using an activity based costing system.
c) Compare unit factory cost unit using tradition absorption costing with activity based costing
(ABC); and explain the impact of ABC on product pricing
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