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In: Accounting

Q 12 LCC has total budgeted production overheads for next year of GHS816,000 and has traditionally...

Q 12

LCC has total budgeted production overheads for next year of GHS816,000 and has traditionally absorbed overheads on machine hour basis. It makes two products Product V and Product W

Product V Product W

Direct materials cost per unit GHS20 GHS60

Direct labour cost per unit GHS50 GHS40

Machine time per unit 3 hours 4 hours

Annual production 6000 units 4,000 units

Required:

a) Calculate the product cost for each of the two products on the assumption the firm continues to absorb overhead costs on a machine hour basis

b) The company is considering changing to an activity based costing (ABC) system and has identified the following information:

Product V Product W

Number of setups 18 32

Number of purchase orders 48 112

Overhead cost analysis GHS

Machine related overhead costs 240,000

Setup related overhead costs 280,000

Purchasing related overhead costs 332,000

Total production overheads 816,000

Calculate the unit cost for each of the two products on the assumption that the firm changes to an ABC system, using whatever assumption you consider appropriate.

c) Suggest how ABC analysis could be useful for measuring performance and improving profibability

Solutions

Expert Solution


ekkarill92 answered 2 years ago
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