The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system. For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows: Activity Cost Driver Budgeted Activity Budgeted Cost Sets up cost Number of set ups 40 P 20,000 Production monitoring Number of batches 20 40,000 Quality control Number of inspections 1,000 30,000 Total overhead costs P 90,000 Projected data for one of the company’s products, Product X for the coming period as follows: Production and sales 1,000 units Direct labor hours 2,000 hours Units per batch 500 Number of set ups 4 Number of inspections 200 Direct materials cost P 10 per unit Direct labor rate P 20 per hour If the company will use ABC system, the cost per unit of Product X for the coming year will be a. P 62 c. P 86 B. P 50 d. P 12
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein
For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows:
Activity Cost Driver Budgeted Activity Budgeted Cost
- Sets up cost Number of set ups 40 P 20,000
- Production monitoring Number of batches 20 40,000
- Quality control Number of inspections 1,000 30,000
Total overhead costs P 90,000
Projected data for one of the company’s products, Product X for the coming period as follows:
Production and sales 1,000 units
Direct labor hours 2,000 hours
Units per batch 500
Number of set ups 4
Number of inspections 200
Direct materials cost P 10 per unit
Direct labor rate P 20 per hour
If the company will use ABC system, the cost per unit of Product X for the coming year will be
a. P 62 c. P 86
B. P 50 d. P 12
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