Question

In: Accounting

The following table lists out the overhead cost: Activity cost pool Overhead cost (£) Additional Notes...

The following table lists out the overhead cost:

Activity cost pool	Overhead cost (£)	Additional Notes
Job-order set up	25,000
Procurement and placement	350,000
Installation of winding system	170,000	An auto winding system is fitted with every watch
Quality inspection (machine)	70,000
Quality inspection (manual)	24,000
Finishing	160,000	Hand-made finishing
Packaging and delivery	44,250	The company packages and delivers watches in batches containing 10 watches per batch. On an average, the packaging and delivery cost is the same for all batches (10 watches= 1 batch)
Factory cleaning services	30,000	A cost that is not consumed by any of the products

2. The company pays £8 per direct labour hour

3. The following table lists out some key figures for this firm:

*Description*	*Quantity*
Number of watches	1,500 units
Direct labour hours	7,000 hours
Machine hours	14,000 hours
Number of job orders	110
Inspection hours using machine	800 hours
Number of cycles for procurement and placement	2,400 times

Required:

a) Calculate the manufacturing overhead absorption rate using the traditional absorption costing system

b) What would be the sales price of the following two products using the ABC system if the company adds 30% mark-up on total allocated costs?

Model	Luxury	Sports
Category	Female	Male
Job order number	LF-340 & LF-341	SM-119 & SM-120
Number of units	40	60
Direct materials (£ per unit)	85	55
Direct labour hours	200	250
Machine hours	225	750
Inspection hours using machine	12	40
Number of cycles for procurement and placement	50	80

Expert Solution

Manufacturing overhead absorption rate

Activity cost pool	Overhead
Job Order Setup	25000
Procurment and replacement	350000
Installation of winding system	170000
Quality Inspection(Machine)	70000
Quality Inspection(Manual)	24000
Finishing	160000
Packaging and delivery	44250
Factory Cleaning Service	30000
Total Overhead	873250

Total overhead / Total machine Hours

= 873250/14000 = 62.375 per machine hours

Calculation of selling price with ABC

Activity cost pool	Basis	Overhead	basis	Rate
Job Order Setup	no of job orders	25000	110	227.27
Procurment and replacement	no of procurment	350000	2400	145.83
Installation of winding system	no of watch	170000	1500	113.33
Quality Inspection(Machine)	inspection hours	70000	800	87.50
Quality Inspection(Manual)	Labour Hours	24000	7000	3.43
Finishing	Labour Hours	160000	7000	22.86
Packaging and delivery	no of batch of watches	44250	150	295.00
Factory Cleaning Service	machine hours	30000	14000	2.14
Total Overhead		873250

Cost name	luxury female	Total cost	Sports male	Total cost
job order setup	2	454.55	2	454.55
Procurment Cost	50	7291.67	80	11666.67
Installation	40	4533.33	60	6800.00
Quality Inspection	12	1050.00	40	3500.00
Quality manual	200	686.00	250	857.50
Finishing	200	4572.00	250	5715.00
Packaging and delivery	4 batch	1180.00	6 batch	1770.00
factory cleaning	225	481.50	750	1605.00
Total overheads		20249.05		32368.71
Total overhead per unit		506.23		539.48

Cost per unit	Luxury Female	Sports Male
Direct Material	85	55
Direct labour	40	33.3
Overheads	506.2	539.5
Total Cost	631.2	627.8
Marck up	189.4	188.3
Selling price	820.6	816.2

ekkarill92 answered 2 years ago

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