Interim Assessment
Answer all questions
QUESTION 1
During the last 20 years, KL's manufacturing operation has become increasingly automatedwith computer-controlled robots replacing operatives. KL currently manufactures over 100products of varying levels of design complexity. A single, plant-wide overhead absorption rate(OAR), based on direct labour hours, is used to absorb overhead costs.In the quarter ended March 20X5, KL's manufacturing overhead costs were:$000Equipment operation expenses 125Equipment maintenance expenses 25Wages paid to technicians 85Wages paid to storemen 35Wages paid to despatch staff 40 ___ 310 ___ During the quarter, RAPIER Management Consultants were engaged to conduct a review of KL's cost accounting systems. RAPIER's report includes the following statement:In KL's circumstances, absorbing overhead costs in individual products on a labour hour absorption basis is meaningless. Overhead costs should be attributed to products using anactivity based costing (ABC) system. We have identified the following as being the mostsignificant activities:(1) Receiving component consignments from suppliers.(2) Setting up equipment for production runs.(3) Quality inspections.(4) Despatching goods orders to customers.Equipment operation and maintenance expenses are apportionable as follows:
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Component stores (15%), manufacturing (70%) and goods despatch (15%).Technician wages are apportionable as follows:
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Equipment maintenance (30%), setting up equipment for production runs (40%) andquality inspections (30%).During the quarter:
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A total of 2,000 direct labour hours were worked (paid at $12 per hour).
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980 component consignments were received from suppliers.
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1,020 production runs were set up.
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640 quality inspections were carried out.
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420 goods orders were despatched to customers.KAPLAN PUBLISHING Page 3 of 9
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