Question

The company ONDULE produces three types of metallic products: tubs, tanks and ridges. The production process consists of three main stages: 1) Cutting, 2) Transforming and 3) Folding. In addition there are some support activities i.e. the maintenance of the machines. The following information is provided :  

The following information is provided :

1. Consumption of flattened products a. Tubes: 1 000 tons, 50,00 €/ton b. Tanks : 200 tons, 50,00 €/ton c. Ridges: 800 tons, 50,00 €/ton.

2. Direct labour for the production a. Tubes: 3 000 hours, 12,50 €/hour b. Tanks : 2 000 hours, 12,50 €/hour c. Ridges: 1 000 hours, 12,50 €/hour

3. Indirect costs of production 50 000,00 €

Allocation of indirect costs: • Cutting : 40% • Transforming : 20% • Folding : 31% • Maintenance : 9%

The following table provides information with respect to the cost drivers :

	Tubes	Tanks	Ridges	Cutting	Transforming	Folding	Maintenance
Cost drivers				ton	ton	machine hours	maintenance hours
practical capacity				2000	2000	1000	600
Maintenance hours used			300	200	100
Machine hours used	400	400	200

After the analysis of the production process, the CFO decides to create three cost pools for the main sections (cutting, transforming and folding) in addition to a cost pool for the support activities. The CFO wants to know the total cost of each cost pool and to be able to precisely analyze the cost calculation for each of the three products.

Question Calculate the cost (total and per unit) for each of the three products using the traditional method. Show the steps and the calculations.

Answer 1

Assumption : - we are assuming that the allocation of Maintaince and Folding Expenses is based on actual machine and maintance hours used. But generally maintaince are allocated on the basis of practical capacity ( bugeted capacity) and Machine Hours on the basis of Actual machine Runs.

Here the practical capacity of Ridges(product are not given) therefore we took above assumption.