Question1:

ABC Ltd is a shoe manufacturing company. The company produces 2 categories of shoes, Runners
and Sneakers. The material costs $41 per runner while $38 for sneakers. It takes the company 68
mins to produce both shoes divided in the ratio of 70:30. The labours were paid $ 15 per hour last
year and this time the price is expected to rise by 15%.

Advertising budget incurred amounts to $115000 which is divided on equal basis between the
products. ABC Ltd has produced 150,000 shoes out of which 45% were Runners.

Required:

 Calculate the cost per shoe using ABC.

 What would be the difference if conventional costing method was used instead of ABC.
 Calculate the Difference of amount between ABC and Conventional Costing.
 Assuming Runners are sold at $110 and Sneakers at $ 105, what will be the profit for the
company using Conventional and ABC costing.
Question 2:

Trex Ltd is a shoe manufacturer producing 3 categories of shoes ranging over Formal, Semi Formal
and Casual. The company uses standard material for all its production where there is total
production of 115000 shoes, 15000 are Semi-formal, 40000, Casual and 70000 Formal. The direct
Material involved in manufacturing of shoes cost around $12 for Casual, $14 for Semi-Formal and
$15 for Formal. Direct Labour costs $5 per hour where Formal use take 45 min, Casual shoes take 15
mins and Semi formal take 30 mins to be manufactured.

There are additional costs associated to the manufacturing of the range. After every 10000 formal
shoes sold, the company would change the design of the shoe and this would be done by hiring a
designer. Similar is for Semi-formal and Casual shoes where the company introduces new designers
after 3000 and 5000 shoes sold. Last year the company paid the designer $16000 for 4 designs he
rendered to the designing department.

The company has an extensive packaging policy where Formal shoes are packed in a fancy box, Semi
Formal are packed in a regular box and Casual are tagged and sold without a box. It takes the labour
10 mins to pack Formal and Semi Formal Shoes while 5 mins to tag Casual shoes. Last year the
packaging labours were paid $18000 for 6000 hours of work.

Advertising cost incurred by the company totals up to $345,000 which is divided in the ratio of
50:30:20.

Required:

 Calculate the cost per shoe using ABC.

 What would be the difference if conventional costing method was used instead of ABC.
 Calculate the Difference of amount between ABC and Conventional Costing.
 Calculate the profit per category of shoe if every category is sold at 65% Profit Margin.