Sanditon Ltd designs and manufactures four products H, I, K and K for the manufacturing industry. Output and cost data for the period just ended are as follows: Output No. of production Material Cost Direct labour Machine hours runs in the period per unit hours per unit per unit Units £ H 40 4 25 2 2 I 70 4 30 3 6 J 90 6 80 3 6 K 360 8 100 4 4 22 Direct labour cost per hour is £7. Overhead costs are as follows: £ Short run variable costs 6,000 Set-up costs 10,000 Expediting and scheduling costs 8,000 Materials Handling Costs 10,000 34,000 The following cost drivers have been identified: Short run Variable Costs = Production Runs Set up costs = Production Runs Expediting and Scheduling Costs = Machine Hours Materials Handling Costs = Labour Hours N.B. Machine hours are to be used as the traditional overhead application method Required: a) Calculate the product cost using a Traditional and ABC approach. b) Discuss and analyse alternative methods available to businesses of allocating costs
Sanditon Ltd designs and manufactures four products H, I, K and K for the manufacturing
industry. Output and cost data for the period just ended are as follows:
Output No. of production Material Cost Direct labour Machine hours
runs in the period per unit hours per unit per unit
Units £
H 40 4 25 2 2
I 70 4 30 3 6
J 90 6 80 3 6
K 360 8 100 4 4
22
Direct labour cost per hour is £7.
£
Short run variable costs 6,000
Set-up costs 10,000
Expediting and scheduling costs 8,000
Materials Handling Costs 10,000
34,000
The following cost drivers have been identified:
Short run Variable Costs = Production Runs
Set up costs = Production Runs
Expediting and Scheduling Costs = Machine Hours
Materials Handling Costs = Labour Hours
N.B. Machine hours are to be used as the traditional overhead application method
Required:
a) Calculate the product cost using a Traditional and ABC approach.
b) Discuss and analyse alternative methods available to businesses of allocating costs.
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