Question

Please assist with this question:

Having attended a course on activity-based costing, you are decide to experiment by applying the principles of ABC to four products currently made and sold by your company. Details of the products and relevant information are given below for one period.

Products	A	B	C	D
Output in unit	120	100	80	120
cost per unit	R	R	R	R
Direct Material	40	50	30	60
Direct labour	28	21	14	21
Machine hours (per unit)	4	3	2	3

The four products are similar and are usually produced in the production runs of 20 units and sold in batches of 10 units.

The production overhead is currently absorbed by using a machine hour rate and the total of the production overhead for the period has been analysed as follows:

	R
Machine department cost	10430
set-up costs	5250
stores receiving	3600
inspection/quality control	2100
materials handling and dispatch	4620

You have ascertained that the cost drivers to be used are as listed below for the overheard costs down.

COST	COST DRIVER
SET-UP COSTS	Number of production runs
Stores receiving	requisitions raised
Inspection/quality control	Number of production runs
Material handling and dispatch	Orders executed

The number of requisitions raised on the store was 20 for each product, while the number of orders executed was 42, each order being for a batch of 10 of a product.

Required:

1. Calculate the total costs for each product if all overhead costs are absorbed on a machine hour basis.

2. Calculate the total cost for each product using the activity-based costing.

3. Calculate and list the unit product costs from your figures in 1 and 2 to show the differences. Comment briefly on any conclusions which may be drawn that have pricing and profit implications.

Please with answers to the above question.

Regards,

Answer 1