The following example illustrates how traditional cost accounting techniques could result in a misleading and inequitable division of costs between low-volume and high-volume products, and demonstrates that ABC may provide a more meaningful allocation of costs. Suppose that Cooplan manufactures four products, W, X, Y and Z. The direct labour cost per hour is $5. Other output and cost data for the period just ended are as follows. Number of Material cost Direct labour Machine production runs in the period Output units per unit $ hours per unit hours per unit W 10 20 1 1 10 80 3 3 Y 100 20 1 1 Z 100 80 3 3 Overhead costs $ Expediting and scheduling costs Materials handling costs 9,100 7,700 Short-run variable costs 3,080 10,920 Set-up costs Required Prepare unit costs for each product using traditional costing and ABC. 22554

The following example illustrates how traditional cost accounting techniques could result in a misleading and inequitable division of costs between low-volume and high-volume products, and demonstrates that ABC may provide a more meaningful allocation of costs. Suppose that Cooplan manufactures four products, W, X, Y and Z. The direct labour cost per hour is $5. Other output and cost data for the period just ended are as follows. Number of Material cost Direct labour Machine production runs in the period Output units per unit $ hours per unit hours per unit W 10 20 1 1 10 80 3 3 Y 100 20 1 1 Z 100 80 3 3 Overhead costs $ Expediting and scheduling costs Materials handling costs 9,100 7,700 Short-run variable costs 3,080 10,920 Set-up costs Required Prepare unit costs for each product using traditional costing and ABC. 22554

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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