Scribd Logo
Upload

Welcome to Scribd!

  • ABC Costing Notes

    Uploaded by

    Muhammad Faizan
    30 views36 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    30 views36 pages

    ABC Costing Notes

    Uploaded by

    Muhammad Faizan

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 36
    WHAT’S WHAT OF ABC ? The activity is the work that is done. The resource is what the activity uses to do the work. The cost of the activity depends on the quantity of resources used to accomplish the activity. The cost driver for an activity is the factor that influ the amount of the resources that will be consu activity. The activity driver measures how much of, used by the cost object. The cost object is whatever it is you wish to cost be a product, service, process, job or customer. ¢ N : a, RY Scanned by CamScanner Scanned with CamScanner Activity Based Costing (ABC) ABC isa ABC is designed to “good Sipplement provide managers with to our traditional a cost information for ey strategic and other decisions that potentially affect capacity and therefore affect fixed as well as variable costs. 2 \asreg, ) Merton Scanned by CamScanner Scanned with CamScanner How Costs are Treated Under Activity—-Based Costing a Traditional Costing The predetermined overhead rate is based on budgeted activity. This results in applying all overhead costs including unused, or idle capacity costs to products. @ ABC bases level of activity on capacity. aq in five WayS: ABC Products are charged for the costs of capacity they use — for the costs of capacity they don’t use. Unused capacity costs are treated as period expenses. not Scanned by CamScanner Scanned with CamScanner Aaivity Bose _certing Sole pa 72 less mM ataial keh our Vari able Other oven} snl VANE A © Maching tast dvethencl v Engineering ig Oveibgen cd vw SA up ove hecxof : / In spe chien aVesheaA Mime ——_— —. Fradiional Couinp 7 Rin ete So FY les matsiat “feb our : Oe ovehead overall —— | Scanned by CamScanner Scanned with CamScanner How Costs are Treated Under Activity-Based Costin "Best practice” ABC fers rom radonal costing #49 WY: ‘Best practice” ABC differs from traditional © costing in ABG Traditional product costing Scanned by CamScanner Scanned with CamScanner Preparation of ABC pipauct prottabity report = i fobs ds The next step is to compute the Activity Cost Driver Rate (ACDR). |The ACDR is the amount determined dividing the activity expenses by the total quantity of the activity cost driver. Activity-Based | losting r Finally, ABC Products Profitability Report is prepared. It _combines activity expenses assigned to each product with their ‘direct (labour and material) costs. The activity expenses assigned to a product is arrived at| multiplying the ACDR by the quantity of each activity cost, (driver used by each product. Scanned by CamScanner Scanned with CamScanner Tracing Costs from Activities to Products | Transaction ue Transaction drivers are used to count the frequency of an activity/the number of times an activity is performed. Duration drivers represents the amount of time required to perform an activity. are “used to charge directly for Intensity drivers” each time an activity is performed. the resources used Scanned by CamScanner Scanned with CamScanner TRADITIONAL COSTING VS ABC > traditional cost accounting it is assumed that cost objects consume resources whereas in ABC it is assumed that cost objects consume activities. Traditional cost accounting mostly utilizes volume related allocation bases while ABC uses drivers at various levels. Traditional cost accounting is structure-oriented whereas ABC is process-oriented. Scanned by CamScanner Scanned with CamScanner Step 1: Identify Resources Step 2: Identify Activities Step 3: Identify Cost Objects Step 4: Determine Resource Drivers Step 5: Determine Cost Drivers STEPS INVOLVED Scanned by CamScanner Scanned with CamScanner ~ Cost Customer Pools Order Processing Material Planning/Acquisition | Cost Drivers No. of customers No. of order source (customer Noeation No. of orders by quantity No. of by value No. of customers visits aa No. of items/parts/components ay No. of deliveries m No. of material receipts No. of material orders No. of material movements No. of stock shortages/discrepancies No, of material transactions Weightvolume of materials No. of material movements Scanned by CamScanner Scanned with CamScanner VVSLFOOIS \ \nspection and Quality Control No, of inspecti Cost er rt cllons Production Control Maintenance Research and Development Customer Service Customers Accounting No. of rejects No, of Teceipts No. of parts/volume No. of customers Balch sizes No, of product changes No. offset-ups No. of suppliers No. of product changes No. of parts Operational No. of production hours No.of machine changes No, of order board changes _| No. of personnel supervised No. of schedule changes “| No.of machine layout changes No. of production batches No. of set-ups No. of work orders No. of set-ups No. of machine break-downs: Capital expenditure «| No. of defects No. of toot changes ‘Activity levels A No. of product changes No. of production hours No. of engineering changes Maintenance schedule No. of research projects Personnel hours on a project. Technical complexities of projects No. of services calls 5 lo. of products serviced Ms ‘of hours spent_on servicing pro. No, of despatches No. of deliveries Jo. of invoices: te ‘of accounting reports No, of sales orders ee ed Scanned by CamScanner Scanned with CamScanner SUestion # log ' Products XYL YZT ABW (000) (008) ¢000) Sales and production (units) 50. 40 30 () » Selling price (per unit) So os 3 Prime cost (per unit) 32 Bd 6S Hours Hours Hours Machine departinent 7 (machine hours per unit) - Assembly department _ 3 2 Greet labour hours Per unit) Overheads allocated and eppoitioned to production der Partments (including service cost centre cbsts) ‘were to be recovered in product costs as follows: Machine department at + £1.20 per machine hour Assembly department at £0.825 per direct labour hour ‘You ascertain that the above overheads could be re+ Analysed into ‘cost pools’ as follows: Quantity * for the Cost pool £000 Cast driver period rd + Machining 387 Machine hours 429000 services : Assembly 318 Direct labour $3000 services hours Setup costs: 26 Set-ups 520 Order processing 156 Customer orders 32000 Purchasing _84 Suppliers’ orders - 11 200 9a, You have also been provided with the following estimates for the period: Products XY YZT ABW ‘Number of get-ups 120-200 200 ‘Customer orders 9000 8000-16000 _Suppliers* orders 3000-4000 @ 4200 eres prefer cone t Scanned by CamScanner Scanned with CamScanner SA4e. fe unit us ay 2 es. Prime Cast Paronif 3.2. BY os cim fe anit tS H+ “G X_ BL vodume uniP SOO Wa 20) otal Crbibrtin margin SSaan Ybb4a0 _alig.wp ley DVehe machine Dp, it ovsheaa as ey (enochine Pee ubid ot oabccd 120,060 |e Ihtaon \ a nanan unk} 290) eh | Bow || 59 sry _| : a poset RU TASO —TaTan 85a Scanned by CamScanner Scanned with CamScanner — ABC Parfit Catintrt «cag 2Y7r Tr We 08" ‘a ae Gotet Cim 680 Gly p 226 less avabeadls machine Rept Overhead | RS a) ye Accembly Defrt Diche,, tl R10 Jz RY4 set-up Ca & 76 10 idler Dike Kir seal 34 Fe fated Sr-$—e Qype PrAT ay eS 4 Scanned by CamScanner Scanned with CamScanner Waking Ei Paal_overh oy ead (a 5} fa machine _~ 98 Jo = OBS pay _marclyre four: t 6e6VICe L124) an. a Aceh See 0:60 Per pired Apo toy. Seevico $3000 Pep celui cit « 240m OP Leth co} fc ISOOTD 9D Per Cu fer ceded Pwrasing < ee a¥2S Pr Cuda, ger Puychasing cach = Quay 9S Per tuppyier 12a tae ab ove Los yf af Abi WN umby q Je-up Ne 24. 2m x x Az $0 Lecsckup wt Co Ta eo —- — — A 6660 len lan,m | Custom ova Ya Yon Ban Pec_cuslome nis __. 2269-996 Scanned by CamScanner Scanned with CamScanner ng .1 Example: Activity based costi 2.1 Examp! Y and Z. Output and cost data for the periog jy. ‘Suppose that Cooplan manufactures four products, W, X, ended are as follows. nuombar of yroduction ' a inthe Material cost Direct labour Machine Output units period per unit hours per unit — hours per unit $ w 10 2 20 i 4 x 10 2 80 8 ; ¥ 100 5 20 1 z 100 5 80 3 3 u Direct labour cost per hour : $5 Overhead costs $ Short run variable costs 3,080 Set-up costs 10,920 Expediting and scheduling costs 9,100 Materials handling costs 7,700 » — 30,800 Required Prepare unit costs for each product using conventional costing and ABC. Solution Using a conventional absorption costing approach and an absorption rate for overheads based on either direct labour hours or machine hours, the product costs would be as follows. Ww x yy zZ “Total $ $ $ $ $ Direct material 200 800 2,000 8,000 Direct labour 50 500 1,500 Overheads * 700 7,000 “21,000 950 9,500 44,000 Units produced 10 “100 Cost per unit $95 $305 $95 * $30,800 = 440 hours = $70 per direct labour or machine hour. Scanned by CamScanner Scanned with CamScanner Using activity based eae ae hapa) at He ed of production runs is the cost driver for set- ts h material it cost driver for short-run variable costs, unit costs would eae eae ea w : $ e y Zz Total Direct material 200 io § s aaa ot 50 150 ‘500 ‘ts00 jort-run variable overheads (W1) 70 210 700 2,100 Set-up costs (W2)_ 1,560 1,560 3,300 31900 Expediting, scheduling costs (W3) 1,300 1,300 3.250 3.250 Materials handling costs (W4) i : 2.750 21,500 44,000 Units produced 10 100 100 Cost per unit $612 $131 $215 Workings 1 $7 per machine hour 2 $780 per run 3 $650 per run 4 $550 per run Summary . Conventional costing ABC Difference per Difference in Product unit cost unit cost i i $ : + 428 +333 43,330 , 305 512 +207 42,070 : e 431 +36 43,600 i 218 90 9,000 z The figures suggest that the traditional volut (a) It under-allocates overhead cos! overheads to higher-volume pro (b) It under-allocates overhe: work needed per unit) and ts to low-volume products (here, ducts (here Zin particular). ad costs to smaller-sized products (here W and Y over allocates overheads to larger products (here me-based absorption costing system is flawed. Wand X) and over-allocates with just one hour of X and particularly Z)- Scanned by CamScanner Scanned with CamScanner Traditional costing (v) ABC £ Question: lhe same equipment and similar process¢ manufactures two products, L and M, using t aye pesciurit production data for these products In one period is shown below. extract of the con / Quantity produced (units) , ql 7,000 Direct labour hours per unit 3 i Machine hours per unit 40 a Set-ups in the period ie : Orders handled in the period Overhead costs § Relating to machine activity 220,000 Relating to production run set-ups 20,000 Relating to handling of orders 45,000 285,000 Required Calculate the production overheads to be absorbed by one unit of each of the products using the following costing methods. (@) _ Atraditional costing approach using a direct labour hour rate to absorb overheads (b) An activity based costing approach, using suitable cost drivers to trace overheads to products (a) Traditional costing approach Direct labour : hours Product L = 5,000 units x 1 hour 5,000 Product M = 7,000 units x 2 hours 14,000 19,000 = $285 19, = $15 per hour .. Overhead absorption rate Overhead absorbed would be as follows. Product L 1 hour x $15 = $15 per unit ProductM 2 hours x $15 = $30 per unit Scanned by CamScanner Scanned with CamScanner (b) ABC approach Machine hours Product L = 5,000 units x 3 hours 18,000 Product M = 7,000 units x 1 hour Using ABC the overhead costs are absorbed according to the cost drivers. $ Machine-hour driven costs 220,000 + 22,000 m/chours = $10 per m/c hour Set-up driven costs 20,000. + 50 set-ups 3400 per set-up Order driven costs 45,000 + 75 orders = $600 per order Overhead costs are therefore as follows. Product L Product M $ $ Machine-driven costs (15,000 hrs x $10) 150,000 (7,000 hrs x $10) 70,000 Set-up costs (10 x $400) 4,000 (40 x $400) 16,000 Order handling costs (15 x $600) 9,000 (60 x $600) 36,000 Units produced 5,000 Overhead cost per unit $32.60 These figures suggest that product M absorbs an unrealistic amount of overhead using a direct labour hour basis. Overhead absorption should be based on the activities which drive the costs, in this case machine hours, the number of production run set-ups and the number of orders handled for each product. Scanned by CamScanner Scanned with CamScanner 10.6* Intermediate: Comparison of traditional product costing with ABC Having attended ‘a CIMA course on activity-based costing (ABC) you decide to experiment by apply- ing the principles of ABC to the four products currently made and sold by your company. Details of the four products and relevant information are given below for one period: : Product A.B ¢ Dd She Eee Output in units 120 100 80 120 Costs per unit: @):...€° &). . © Direct material — a0) 50 40 | 00 ° Direct labour ~ 283.22) eil4-s: 21 Machine hours (per unit) 4 88202! 3 . The four products are similar-and are usually produced in production runs of 20 units and sold in batches of 10 units. _ $ The production overhead is currently absorbed by using a machine hour rate, and the total of the +production overhead for the period. has been -analysed as follows: ‘ @) “Machine department Costs (rent, business Tates, depreciation : 10430 / and supervision) i as Set-up costs ‘wae aah 4c 5250 -* Stores receiving - 3.600 » Inspection/Quality control == «22: 100 ~ Materials handling and despatch 4620 - Scanned by CamScanner Scanned with CamScanner You have ascertained that the “cost drivers’ to be ] _ used are as listed below for the overhead costs | shown: _ : Cost Cost Driver Set up costs Number of production runs Stores receiving _ Requisitions raised Inspection/Quality control Number of production : runs Materials handling Orders ‘executed and despatch + The number of requisitions raised on the stores was 20 for each product and the number of orders ~ executed was 42, each order being for a batch of 10 of a product. You are required (a) to Calculate the total costs for each product if all overhead costs are absorbed on a. machine _ hour basis; : ' ” (4, marks) (b) to calculate the total costs for each product, _ “using activity-based costing; (7 marks). (c). to calculate and list the unit, product costs, from your figures in (a) and (b) above, to show - the differences and to comment briefly on any “conclusions which may be drawn which could = ici d profit implications. : - have eee an P ae) (Total 15 marks) Scanned by CamScanner Scanned with CamScanner 1120 x 4 hrs) + (100 x 3 hrs) + (60 X 2 hrs) + (120 x 3hrs) Question 10.6 1300 hrs. £10 430 + £5250 + £3600 + €2100 + £4620 Machine hour overhead rate = Ts00ke = £20 per machine hour Product A B c D © © © © Direct material 40 50 30 60 Direct labour 28 a 4 2 Scanned by CamScanner Scanned with CamScanner i 80 0 40 Overheads at £20 per machine hour a ¢@ 2 « : 20 100) ay Units of output £17760 £13100 £6720 gyn) Total cost Cost driver Cost driver Cost per (e) Costs transactions — unit © © 10430 Machine hours 1300 hours 8.02 Machine department 5250 Production runs 21 250 Set-up costs | 3.000 Requisitions,raised 80 (4 * 20) 6 Stores receiving antral 2100) Production 1uns 21 109 Inspection/quanly Number of orders Materials handling executed 42 no Pate : = ut (420 snits)/20 units per set-up. Number of production runs = TO) OOP 9p units)/10 units per order. Number of orders executed = To! The total costs for each product a re computed by multiplying the cost driver rate t driver consumed by each product. per unit by the quantity of the cos! A B (ey D Prime costs 8 160 (£68 X 120) 7100 3520-9720 Set ups 1500 (£250 x6) 1250 (£2505) 1000 1500 Stores/receiving 900 (£45 x 20) 900 3900 900 Inspectiorvquality 600 (£100 x 6) 500 400 «600 Handling despatch 1320 (£110 x 12) 1100 (£110 10) 880-1320 Machine dept cost* 3851 2407 1284 2888 Total costs 16331 13257 7984 16928 Note *A = 120 units x 4 hrs X £8.02; B = 100 units x 3 hrs x £8.02 (©) Cost per unit Costs from (a) 148.00 Costs from (b) i 131.00 $4.00 141.00 Difference 13257 99.80 141.07 (11.91) 157 15.80 0.07 Product A is over-costed with the Costed and similar costs are re} accurately measures resoure used, the transfi activity-based ‘costs are ; us . eported profits wil differ for stock traditional system. Products B ‘ ti . and C are under Ported with Product D. It is claimed that ABC more relying on misleading Product coat ne by produets (see ‘Errors arising fi rom fet to an ABC system ogi spect 10). Where cost-plus pricing s " resale in different product prices. !! aluations then stock valuations an! Scanned by CamScanner Scanned with CamScanner Qi \ (PTTL RON:) A company plans to experiment activity based costing (ABC) by appl its principles to its four products. Details and relevant information are given below for a particular month: eee Products Wor oY 2 I'D 80120 = S Output in units (720 100 20. Cost per unit : Rupees ~~ Raw material 4—~ nn) Direct labour 21 14 a “Machine hours per unit Ao 3 2 = All the products are similar and usually manufactured in production uns. of. 20 units ntly absorbed by and sold in batches of 10 units. Manufacturing overhead is curre! using a machine hour rate of Rs. 20 per hour. Total overhead forthe month and cost drivers To be used are as follows: Manufacturing overhead ‘Amount (Rs) __cost driver to be used Machine department cost 10.430 : Set-up costs 57250 Number of production runs Stores receiving 3,600 Requisitions raised Inspection/ quality control 2,100 Number of production runs Materials handling and despatch 4,620 Orders executed Number of requisition raised on the stores was 20 for each product and number of orders executed was 42. Each order has a batch of 10 units. Required: : Calculate thé following: i)" Total cost for each product, if all overhead costs are absorbed on machine hour basis. : 3 - ; 02 (i)___Menufacturing overhead cost per unt,“ os od (iit) Fotai cost for each product, using ABC.approaciS—— 06 Solution: fs : oat (i) Total cost of each product if overhead costs are absorbed on machine hour: Product: WW - x y, Zz Raw material ~ 40 50 “30 60 Direct labour’ f 24 14 —Dverhead at Rs. 20 perhour 60 40 60 7 ‘ost per units ~~ 148. 131 84 = vg ~Gutput in units 129 - 100 80 ‘2 o ~fotal cost 17,760 13,100 ; oy Sw. oo rn Scanned by CamScanner Scanned with CamScanner Ww Manufacturing overhead cost per unit: ° Cost! Overhead Ri Cost driver : Costdriver Transactions fm Machine department cost 110,430 “Machine hours 13000 hours 023 Set-up costs 8,250 Production runs* 2 + 250.000 Stores receiving : 3,600 Requisitions raised 4x20 =80 45.000 Inspection / quality control 2,100 Production runs” 4 100.000 Material handling and dispatch _4,620_ Orders executed** 42 448.000 No. of production run = 420 units +20 units per set-up = 21 runs No. of order executed = 420units + 10 units per order = 42 orders {ill) Total cost of each product using activity-based costing: ‘Material & labour () 8,160 7,100 3,520 9,720 Set-up costs (2) 1500 1,250 1,000 1,500 Stores receiving (20 at Rs.45) 900 900 900 900 Inspection/quality control (3) 600 500 Mat. Handling and dispatch (4) 1,320 4,100 Machine department cost (5) _3,854 2,407 Totalcost 16,331 13,257 Notes (4) Cost per unit x output units a Based on production run‘of 21 Based on production run of 24 (4) Material handling 110 x 12 (8) Output units x machine hours per unit x machine dept. cost per unit. Scanned by CamScanner Scanned with CamScanner A steel manufacturing compan) ; i IP simple Activity Based Costing (ABC pools and activity measures: Activity cost pool Assembling units. Processing orders Supporting customers Others Not applicable The company has two types of overhead with following Production overhead Selling and administrative overhead Total overhead costs ES ‘oduces filing cabinets. The company has @ ) system which has the following activity cost Activity measures Number of units Number of orders Number of customers cost break-up: Rs. 000" 2,000 “4,200- iw 3,200 34 any allocates the overhead cost to the activity cost pools on following The comp: basis: Distribution of Resource consumption Across [Assembling Processing Supporting | others Activity Cost Pools Units Orders | Customers 0 Production overhead % \ 50% 35 = oy i ef Selling and administrative overhead %. 1 45 25 al 7000 | 250 400 Total activity units orders | customers filing cabinet jling price of @ ae Rs. 720 an direct labour are ordered 80 cabine id Rs. is Rs. 2,380. Per unit cost of direct materials and 260 respectively. Last month, a customer g (in total) at four different times. Required: Calculate the following (i) V “Allocate total overhead costs to the activity cost pools oe fay Aactivity rates for the activity cost pools = (iii) Overhead cost attributable to four orders for'80 cabinets te (iv) Customer margin cs Scanned by CamScanner Scanned with CamScanner Solution: aa {i) Allocation of costs to the activity cost pools: Assombing Tt Bs. 000 ssembling — Processing Supporting Is ~~ Aativity cost poo! Units Orders Customers Uners Total Production overhead 700~ ~ 10 200° 2,000" Selling & administrative O.H : _ 540 301 240 1,200 Total overhead costs 11205 1,240 440 3,200 (ii) Activity Rates for the Activity Cost Pools: x Rs. ‘000" Total Cost Total Activity Activity Rate (Rs.) (Rs.) E __ Assembling units 1,120,060 units 7AN205 per unit Processing orders 4,240,000 orders 4,960 per order Supporting customers customers | 4,000 _per customer {iii) Overhead cost attributable to 4 orders of 80 cabinets t 1,120 S~ [80 units —~ 4 orders t+ customers "ABC Gost (Rs.) — Assembling units Processing orders Supporting customers iv) Customer Margin: A” /) (iv) Customer Margin: / C1 Rs. — ‘Sales (80 units @ Rs. 2,380) 190,400 Less: Costs Direct material (80 units @ Rs. 720) 57,600 Direct labour (80 units @ Rs. 200) 16,000 Overhead under ABC method: a Unit related overhead 89,600 Order related overhead 19,840 Customer related overhead 4,000_ | 187,040 Customer margin - 3360 Scanned by CamScanner Scanned with CamScanner duct X is produced in two 200 units. Assuming each tent. The manufacturing 7 F Question No. 17 XYZ Ltd. Company manufactures two Products X and Y Pro runs of 500 units and Product Y in five independent runs of product consumes equal direct material and direct labour con' ee overheads amounts to Rs. 14,000, which comprises of line set-up costs of Rs. 7,000, product inspection costs of Rs. 3,500 and Rs. 3,500 for material movement to the product line. Total costs incurred for producing 1000 units of Product X and 1000 units Product Y Rs. 10,000. 2,000 will be as under: Direct materials Direct labour Manufacturing overhead Scanned by CamScanner Scanned with CamScanner Answer No. 17 Product wise Total Cost unde! Traditional Costing Particulars Total | por unit ; cost 00 5,000 Direct materials - e,o0e ‘ 00 1,000 Direct labour ; 1000) Fo] 71 Manufacturing overheads (700% of direct labour) 7,000 : Total cost 43,000 | 13.00 | Product wise Total Cost under Activity Based Costing (Rs) Product X Product Y Particulars {1.000 Unit) Ti cee san Total | perunit | 10%! Per unit cost cost Direct materials (000 5.00| 5,000 5.00 Direct labour 4,000 1.00] 1,000 1.00 Manufacturing overhead: Line set-up costs (Two set-ups; Five set-ups) 2,000 2.00| 5,000 5.00 Product inspection costs (Two inspections; Five inspections) 1,000 1.00] 2,500 2.50 Material movements (Two movements; Five movements) 1,000 1.00 2,500 250 10,000 | 10.00 [~ 16,000[- 46.00 Total Cost. - Scanned by CamScanner Scanned with CamScanner Chapter.g2 question No. 16 Pres eted overheads ang cost dtiver vai eS OF XYZ Lid; Ay oat Budgeted ° Are as follows: Overhead (Rs) | | Cost a | eames tend a oe ate Budgeted volume t 350,000 No. of movements 5,000 No. of set-ups | : Re Maintenance | K —|.No. of i i uesomn Of inspections : No.of machine hours of 2,600 components of AX-1! 5,.its material cost was, 245,000. The USage activities of the said batch are company has produced a batch *30,000 and labour cost was Rs. S k al orders - 26 . Maintenance hours ial movements 18 Inspection -upS 25°. Machine hours. Required: Calculate cost driver rates “that are used for \racing overheads to the said batch. 5) Ascertain the cost of batch of components using ABC. (3) appropriate amount of ( Scanned by CamScanner Scanned with CamScanner answer No. 16 q i Calculation of Cost Driver Rates Rs. §80,000/1,100 (a) Material procurement Materia! handling Set-up Maintenance i Quality control Rs. 176,000/900 Machine _ = Rs, 720,000/24,000 =. Rs.30 ») Calculation Cost of a Batch of 2,600 Components of AX-15 aby Direct material ti 130,000 Direct labour 245,000 Prime cost 375,000 Add: Overheads ie Material procurement (26 x Rs. 527) Material handling (18 x Rs. 368) Set-up cost ; 5) (25 * Rs. 798) Maintenance 8 (690 * Rs. 115) k Quality control (28 * Rs. 195) § Machine (1,800 * Rs. 30) . 179,086 Balok nnn es & 554,086 Scanned by CamScanner Scanned with CamScanner Marks Q.2 The details of the cost, volume and cost drivers for a particular period in respect of Daata Textile Limited are as under: es Product = Allipha Beta Zeta_—‘Total Production and sales (units) 45,000 35,000 10,000 Sale price (Rs.) 100 110 = 100 Raw material usage (units) 5 5 1" Direct material cost (Rs./ unit & total) aos 15 2,375,000 Direct labour hours 2 4 2 280,000 Machine hours 2 3 2 215,000 Direct labour cost (Rs./ unit) 12 15 10 Number of production runs 3 7 2 30 Number of deliveries 9 a 20 32 Number of receipts of inventory components 15 35220 270 Number of production orders 5 dO: 25) 50 Overhead cost: Rupees _ Set-up 50,000 Machines 800,000 Receiving 500,000 Packing 300,000 Engineering 400,000 2,050,000 In the past the company has allocated overheads to products on the basis of direct labour hours, though the majority of overheads are more closely related to machine hours than direct labour hours. The company has recently redesigned its costing system for recovering overhead of receiving department using two volume-related bases: machine hours and a material handling overhead rate. Required: (a) Compute the product-wise profitability using a traditional volume-related costing system based on: (i) past practice. 04 (ii) current practice. 04 (b) Compute product-wise profitability using an aclivity-based costing system. 06 (6) Briefly explain the differences between the productwise profitabiliy calculated in (a) and (b) above. Scanned by CamScanner Scanned with CamScanner Q.2 (a) (i) Product-wise profitability — past practice: Total Machine hours pect labour overhead rate = —--Toaoverheads ___ 2,050,000 5 bea celles Tolal direct labour hours 250,000. Product cost: Rupees Product Alpha Beta. Zeta Direct material 30 25 15 Direct labour 12 15 10 Overhead (W-1) 16 33 16 Total cost 58 73 a Sale price per unit 100 110 100 Profit per unit 42 37 59 Workings: Rupees Bela___Zela 400 2.00 © Per hour rate 8.20 8.20 8.20 s@_Overheads 1640 32.80 _16.40 “(ii)_ Product-nise profitability — current practice: Receiving department overheads . . piving

    You might also like