In: Accounting
M & M LLC is producing different range of chocolates mainly including fruits & nuts, caramel smooth, dark fantasy.
Assume you are senior accountant of M & M LLC and comparing between both the methods of costing absorption and ABC system on the basis of following information:
Prime Cost Details: -
RO 0.150 per unit on materials and RO 0.120 per unit
on direct labour paid for fruits & nuts.
RO 0.120 per unit materials and RO 0.100 per unit on
direct labour paid for caramel smooth.
RO 0.180 per unit on materials and RO 0.130 per unit
on direct labour paid for dark fantasy.
Production detail: -
In the month of June Company is expected to produce 200,000 units of fruits & nuts; 150,000 units of caramel smooth; 100,000 units of dark fantasy.
Overheads, Activity and Cost Driver Details: -
The labour hour per units 0.02 for fruits & nuts;
0.010 for caramel smooth; and 0.015 for dark fantasy.
The production cost incurred RO 3,600. Machines runs
700 hours for fruits & nuts; 500 hours for caramel smooth; 400
hours for dark fantasy;
The machine set-up cost incurred RO 2,800. The
production runs 120 for fruits & nuts; 80 for caramel smooth;
75 for dark fantasy.
The Procurement costs incurred RO 1,800. Number of
purchase order 50 for fruits & nuts; 35 for caramel smooth; 45
for dark fantasy;
The delivery costs incurred RO 900. Number of
deliveries 42 for fruits & nuts; 40 for caramel; and 38 for
dark fantasy.
Requirements: -
Calculate total cost and cost per unit of each types
of chocolate by applying absorption costing.
Calculate the total cost and cost per unit of each
types of chocolate by applying ABC system.
Calculate the selling price by adding 20% mark up on cost for each
brand of chocolate. Also, analyze over costing and under costing
for each type of chocolate