ACCG 2000 Week 7 Homework Answers

Discussion:

1. In most modern manufacturing businesses, products are often changing,

or new products are developed as an attempt to grow the business.
Diversity in product manufacturing is a common occurrence in today’s
business world. In most cases different products utilise different
proportions of a companies predetermined cost pool proportion and
associated cost may not be directly connected to volume. The integration
of volume-based costing will lead to an inaccurate reading of a business’s
product manufacturing costs.

2. It is important to firstly consider the possible advantages and

disadvantages of adopting an Activity based costing method. An activity-
based costing system would allow a managing director to make decisions
regarding scenarios such as, manufacturing overheads which are mostly
unrelated to volume of manufacturing, the proportion of MOH is
increasing relative to direct labour/material costs and when a large
product range is in operation. By adopting ABC efficiently and
effectively considerable business value can be achieved. However, if
ABC is not adopted correctly high management cost of ABC such as cost
associated with data management and IT support, seemingly correct
integration may not always yield expected results. Therefore, the stance
of the managing director considering their situation is reasonable to agree
upon.

Exercises:

a) Predetermined overhead rate- $150,000/50,000=$3.00

b) Unit product cost for each type of unit

Deluxe- (3*6000) +50000)/5000=$13.6

Regular- (3*48000) +320000/50000=$9.28

Problems
a) Unit cost of each product (Conventional costing approach)

Muncher Toppler
DM $60,000 $35,000
DL $120,000 $70,000
MOH $30,843.75 $16,156.25
Total costs $210,843.75 $121,156.25
Num. of units 3000 1000
Product cost/per $70.28 $121.16
unit

b) Unit cost of each product (Activity based costing)

Muncher Toppler
DM $60,000 $35,000
DL $120,000 $70,000
MOH:
Warehousing $32,000 $28,000
Machine $30,843.75 $16,156.25
maintenance
Setup $37,500 $62,500
Total costs $280,343.75 $211,656.25
Num. of units 3000 1000
Product cost/ per $93.45 $211.66
unit