ON GOING TesT Question 1 (i) Prime cost = Direct material + direct labour AO Direct material 22 [Direct labor "Bonding department 120 ishing department 2. 404 jiable production costs AO ‘overhead (2ahrs x $1.5) 36 Finishing (15hrs x $1) 15 455 otal production cost = Variable production cost + Fixed production cost _/, © production overhead per 40. 36,000 / 900 units] 235 | a [iv] Total cost = Total production cost. + total non-production cost. CO > Non-production overhead per unit 30 ($27,000 / 900 units] 525 ee (&) Margin 25%-onsales OS selling price 100% 700 cost 75% 525 profit 25% ws absorption costing, 5 Budgeted direct labor hours 60.000 Budgeted overhead cost 432,000ec a Overhead absorbed eT me [Direct cose ——} wa Full production cost 7,20 10,80 19,20 34,80, banc eG w cost = No.of devers_|cost per diver Set up cost 73.300 Tz | too. 60.000 |No.of special parts] 120.0001 95 [Material Handling 63.000 ]No. of batches 2sz| 2505 Other handling 1.800 [No.of orders 350 | 1320 [Other overheads 216.000 JLabour rs coo] — 36 Pas Desble pus [Fata Setup cont 3200] 72.000] F000 Special parts 12000] 48.000 _so.000 3.000 | 60.000 | 6.000 1.320 [1.480 | 10.800 [Other overheads 36.400 | —123.600-| 16000 703.920 | 328.080 [432-000 Number of units 24.000 124.000) Direct cost aH a Overhead cost per unit 433 13,67 Decrnes 16.33 3787 (6) The reasons for the difference in the production cost per unit) (> between the two methods - The cation of overheads under absorption costing was Unfair. This method assumed that all of the overheads wereDouble Pius . is {ecelved 1.5 times the production overhead of te Plus. However, this method of absor ~ Using ABC, the cost per unit of a Double higher. This is because 'e Double Plus compared to only one of this complexity, the Double Plus has received more than three times the overhead of the Plus. arnis accurate allocation is important because the production overhead is a large proportion of the overall cost, ations for management of using an ABC system instead of an absorption costing system ©. 5 Question 4 1. The salary of the assembly shop's supervisor. Manufacturing OVH O, 2 The sal 'e company’s accountant. Admin exp Op mn 3. Depreciation on equipment used to test assembled com, ‘Manufacturing OVH Cae ¢ 4. Rent on the facility in the industeal park. Admin exp & manufacturing OVH Co 5 Puters before release to customer