Question

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CASE 2: AMAZON LTD

Multibus Ltd manufactures four products namely; A, B, C and D using the same plant and processes. The following data relate to the production activities of the company for the period ended 30^th November 2008:

Product	Number of units	Material cost per unit (Sh)	Labour cost per unit (Sh)	Machine time per unit (hours)
A	500,000	5	0.5	0.25
B	5,000,000	5	0.5	0.25
C	600,000	16	2.0	1.00
D	7,000,000	17	1.5	1.50

            Additional information:

The production overhead costs incurred by the company over the period under consideration were analyzed as follows:

Sh.

                          Machine set up costs              4,355,000

                        Ordering costs                          1,920,000

                        Machining costs                       37,424,000

                        Quality control costs                7,580,000

                        Maintenance costs                   8,600,000

The production overheads were absorbed by the products based on machine hourly rate

An investigation into the production overhead activities for the period reveal the following:

Product	Number of machine set-ups	Number of material orders	Number of maintenance runs	Number of production runs
A	1	1	2	2
B	6	4	5	10
C	2	1	1	3
D	8	4	4	12

Required:

The production cost per unit using the machine hourly rate method      

The production cost per unit using the activity based costing method, tracing the overheads to production units by means of appropriate cost drivers     

Briefly comment on the differences in costs attributed to products A, B, C and D in b(i) and (ii) above                                                                                 

        

Answer 1