Question

Fahmy Furniture, LLC is producing different range of furniture such as sofa set, cupboard, dining table set and showcases. Assume you are senior accountant of Fahmy Furniture, LLC and comparing between both the methods of costing absorption and ABC system on the basis of following information: Production detail: - In the month of June Company expected to produce 50 units of sofa set; 75 units of cupboard; 125 units of dining table set and 25 units of showcases

. Overheads, Activity and Cost Driver Details:

- (i) The overhead costs on production incurred RO 15,000. Machines run 2,500 hours (800 hours for sofa sets; 400 hours for cupboard; 600 hours for dining table set; 700 hours for showcases.

(ii) The overhead costs incurred on set-up RO 8,000. Number of set-up used 150 times (40 times for sofa sets; 30 times for cupboards; 45 times for dining table sets; 35 times for showcases.

(iii) The overhead costs on assembly on material incurred RO 5,000. Labor on assembly of materials worked for 3,000 hours; 900 hours for sofa set; 600 hours for cupboards; 700 hours dining table sets; 800 hours for showcases.

(iv) The overhead costs incurred on packaging RO 3,400. It is incurred for all brands such as sofa sets, cupboard, dining table sets and showcases.

(v) The overhead costs incurred on delivery RO 2,200. It is incurred for all brands such as sofa sets, cupboard, dining table sets and showcases.

Note: - Labor hours given for assembly of materials will be the basis of apportionment and other calculation.

Prime Cost Details:

- (i) RO 75.00 per unit on direct materials and RO 50.00 per unit on direct labour paid for sofa set.

(ii) RO 25.00 per unit on direct materials and RO 15.00 per unit on direct labour paid for cupboard.

(iii) RO 35.00 per unit on direct materials and RO 25.000 per unit on direct labour paid for dining table. (iv) RO 50.00 per unit on direct materials and RO 35.0 per unit on direct labour paid for showcases.

Requirements: -

1. Calculate total cost and cost per unit of each brand of furniture by applying absorption costing.

2. Calculate the total cost and cost per unit of each brand of furniture by applying ABC system.

3. Calculate the selling price by adding 30% mark up on cost for each product. Also, analyze over costing and under costing for each brand.

Answer 1

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