Question

In: Accounting

A company manufactures four products using the same plant and processes. The following information relates to...

A company manufactures four products using the same plant and processes.

The following information relates to a production period: -

Product

Volume

Material costs per unit

Direct labour time per unit

Machine time per unit

Labour cost per unit

A

1,100

£7

30 minutes

15 minutes

£5

B

2,000

£7

30 minutes

15 minutes

£5

C

1,500

£16

120 minutes

60 minutes

£9

D

3,950

£19

90 minutes

90 minutes

£9

Total production overhead recorded by the cost accounting system is analysed under the following headings:

Factory overhead applicable to machine-oriented activity

£39,850

Set-up costs

£4,180

The cost of ordering materials

£1,900

Handling materials

£7,680

Administration for spare parts

£8,300

Investigation into the production overhead activities for the period revealed the following totals:

Product

Number of set-ups

Number of material orders

No. of times material handled

Number of spare parts

A

1

1

2

3

B

8

3

6

10

C

3

1

2

4

D

8

5

10

8

You are required to:

  1. Calculate an overhead cost per product based on traditional absorption costing AND an overhead cost per product using activity based costing.

  1. Discuss THREE key differences between traditional absorption costing and activity based costing.

Solutions

Expert Solution

Overhead Cost under Absorption Costing has been calculated using direct labour hours and machine hours as nothing was specified so kindly use the required one and ignore the other one.


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