In: Accounting
Q1 Give example of company using ABC costing and explain the process used in this company to assign costs in an ABC system?
Q 2 Give examples of questions managers could ask to help them identify relevant qualitative factors that will be used before making decision?
Q 3 Kadhim Co. manufactures product B which is a part of its main product. Kadhim Co makes 50,000 units of product B per year. The production costs are detailed below. An outside supplier has offered to supply 50,000 units of product B per year at $ 2.45 each. Fixed production cost of $ 40,000 associated with the product B are unavoidable. Should Kadhim Co make or buy the product B?
The production cost per unit for manufacturing a unit of product B are:
Direct Materials |
0.85 |
Direct Labor |
0.65 |
Variable Manufacturing Overhead |
0.40 |
Q1 Answer:
The steps in ABC calculation is as follows:
As an activity-based costing example, consider Company ABC that has a $50,000 per year electricity bill. The number of labor hours has a direct impact on the electric bill. For the year, there were 2,500 labor hours worked, which in this example is the cost driver. Calculating the cost driver rate is done by dividing the $50,000 a year electric bill by the 2,500 hours, yielding a cost driver rate of $20. For Product XYZ, the company uses electricity for 10 hours. The overhead costs for the product are $200, or $20 times 10.