Chapter C, Problem 2BPSB

To determine

Activity Based Costing:

Activity based costing is a unique and modern method of allocation of overheads among the products as compared to traditional and departmental base of overheads allocation (where single rate is used for plant or for each departments irrespective of type of cost incurred in the department).

In activity base costing, the cost pool is designed for each type of activity involved in the organization and cost incurred relating to that activity is accumulated in that cost pool. The driver that drives the happening of the activity is observed and is used to compute the overheads rate of using that activity.

The Overheads are allocated to the products on the basis of drivers it consumes for each type of activity. Thus, the activity based costing is a modern and more comprehensive method of allocation of overheads.

Requirement1:

To Determine: The Overheads cost to be assigned per case of each product under plant-wide overhead rate method.

To determine

Requirement2:

To determine: The Total cost per case of each product under plant-wide overheads rate.

To determine

Requirement3:

To determine: The computation of gross margin per case of each product.

To determine

Requirement4:

To determine: The computation of total cost per case of each case under Activity based costing.

To determine

Requirement5:

To determine: The computation of gross margin per case of each product.

To determine

Requirement6:

To determine: The Observation regarding improvement in pricing decision if departmental overheads rate is used.