—_—— @i Acompany manufactures two products using common handling facility. The total budgeted material handling cost is ¥ 60,000. Other details are: [Particulars | Number of units produced ——~gNNVWWN Product A | Product B 30 30 | Material moves per product line | 5 15 | Under Activity Based Costing System, material handling cost to be allocated to Product A per unit is (4) 1,000 (B) % 1,500 (C) ¥500 (D) 2,500. ins. (C) % 500 (Dec. 2014, 2 Marks]03 RTM Lid., using Activity Based Costing (ABC), manufactures two types of products P and Q respectively. During a period, the company incurred % 50,000 as inspection cost and it worked for 10 and 15 production runs re. Spectively for producing products P and Q. The inspection cost for product P under ABC system was: (A) & 20,000 : . - (B) 30,000. (©) & 40,000 __@) None of the above _ Ans. (A) = 20,000 [July 2023, 1 Mark]entities Q.1 Bright Engineering Co. Ltd. manufactures two products X & Y in its factory, similar raw material and similar production Processes are involved in their production, The following particulars are Biven for the year 2012. x Y No. of units produced 240900 15600 No. of orders (total) _ + 30 120 No. of Labour Hours per unit ; 2 4 Set-ups in the year : 20 wo Machine hour per unit 2 the year. These dz 1,80,000respectively. i | the Srehond absorption rate for both the Costing od and the Activity Based Costi | |.2 The following information provides details of costs, volumes and cog, vers for a particular period in respect of AKASH INDUSTRIES LTD. fo; ‘the products X, Y and Z: h ‘ Product X | Product ¥Y | Product Z Total Production and sales (units) 30,000 20,000 8,000 Raw material usage (units) 5 5 Wi: [Direct material cost (7) 25 20 res 12,38,000 Direct Labour hours 43 2 88,000 4 Machine hours % p 413 1. 2 76,000 4 Direct labour cost per unit (2) 8 12 6 -| No. of production runs 3 7 20 30 |L-No: of deliveries 9 3 20 32 No. of receipts (2x7) * 15 35 220 270 No. of production orders . 15." 10 25 50 *The company operates a just-in-time inventory policy and receives each component once per production run. : Overhead Costs : ®@ Setup , _ 30,000 7,60,000 MachinesQ@) Receiving 4,35,000 packing 2,50,000 Engineering 3,73,000 18,48,000 In the past, the company has allocated overheads to products on the basis of direct labour hours. However, the majority of overheads are related to machine hours rather than direct labour hours. The company has recently redesigned its costing system by recovering overheads using two volume- related bases: machine hours and a materials handling overhead rate for recovering overheads of the receiving department. Both the current and the previous cost systems reported low profit margins for Product X, which is the company’s highest-selling product. The cost accountant has recently attended a seminar/workshop on Activity Based Costing and the overhead costs for the last period have been analysed by the major activities in order to compute activity-based costs. Required: () Compute the product costs using a traditional volume-related costing system based on the assumption that: * (A) all overheads are recovered on the basis of direct labour hours (ie. the company’s past product costing system); and (B) the overheads of the receiving department are recovered by a materials handling overhead rate and the remaining overheads are recovered using a machine hour rate (i.e. the company’s current costing system). (i) Compute product costs using an Activity Based Costing System. 4 x [Dec, 2013, 12 Marks] Ans. Statements showing total cost of different products assuming absorption of overhead an a Tahaur Hour Rate hacic «Q.3 MAGATRON LTD. produces and sells Details: of the four products and relevant i week ended March 29, 2014: four products A, B, C and D. information are given below for Products A B c 5 Output (units) 120 | 100 ‘és 136 Cost per unit (%) ‘Tpirect Material 40 50 30 60 Direct Labour : 28 21 14 Py) Machine-hours (per unit) 4 3 5 5 af 20 oni Seed ald in baicles of G hates 2 ee ee The production overheads during the period are as follows: Particulars : / z Factory works expenses 20,860 Set up costs 10,500 ‘Stores receiving 3 7,200 Inspection/Quality control 4,200 Material handling and dispatch 9,240 The production overhead is currently absorbed by using a Machine-hour rate and the company wishes to introduce Activity Based Costing (ABC) system and has identified major cost pools for production overheads and their associated cost drivers. Information in these activity cost pools and their drivers is given below: Activity Cost Pools Cost Drivers Factory Works Expenses Machine-hours Set up costs Number of production runs Stores receiving Requisition raised Inspection/Quality Control Number of production rans Material handling & dispatch Number of orders executed The number of requisitions-raiséd on the stores was 20 for each product and number of orders executed was 42, each order being for a batch of 10 of a product. Requirements: (i) Total cost of each product assuming the absorption ‘of overhead on Machine-hour basis, (ii) Total cost of each product assuming the absorp! using Activity Based Costing. iii) ii) and Comment. : (iii) Show the differences between (i) and (ii) an eine 2014, 12 Marks] tion of overhead byQ.4 Nanu Bank operated for years under the assum can be increased by increasing rupee volumes, case. Cost analysis has revealed the following: ption that profitability But that has not been the Activity Activity | Cost Driver Activity Capacity used Cost @) | Checking | Personal | Gold Visa Accounts Loans Providing ATM 5,50,000 | No. of 2,80,000 NIL| 1,60,000 Services transactions Computer 55,00,000 No. of 35,00,000 | 5,00,000 | 10,600,000 Processing transactions Issuing . 44,00,000 | No. of 14,00,000 | 2,00,000 | 6,00,000 Statements 2 transactions Customer 19,80,000 | Telephone 8,50,000 | 2,34,000| 5,00,000 Inguiries Calls 3 Units Produced 1,50,000| —_25,000| 40,000 You are required @ Calculate driver rates for each activity.1 ear Q.5 ANUKULA UDHYOG LTD. manufactures two types of products X and x and overheads are absorbed on the basis of direct labour hours. The information about these products for the month of May; 2015 is as follows: Product X | Product ¥ 2550 Units | 3300 Units Production volume Direct Material cost per unit %300 2450 Direct Labour cost @ % 60 per hour %240 = 360 During the above said period direct labour hours worked were 30,000 hours and production overheads were %16,87,500. Details of overheads according to identified three activities are as folloActivity ‘Order processing, 3,65,000 ‘Overheads | 11,20,000 Cost Driver level hours 52 900 machine h hours 2,02,500 275 Inspections 400 Inspections uct by using: ‘You are required to calculate the cost of production per unit for each prod- (1) Direct Labour Hour Rate for absorption of overhead; and (2) Activity Based Costing (ABC) Method. Anc _ (une 2015, 10 Marks}units of product f arir Ltd. manufactures ‘Fate based on direet labour co: and it uses a single overhead heads incurred by the company & z Machine operation expenses 20,25,000 Machine maintenance expenses 3,75,000 Salaries of technical staff 12,75,000 Wages and salaries of stores staff 5,25,000 During the period Garur Ltd. introduced activity-based costing system ang the following activities were identified: @ Stores activity-receiving materials @ Production activity-set up of machines for production run @ Quality inspection It is determined that: ¢@ The machine operation and machine maintenance expenses should be apportioned between stores and production activity in 3:7 ratios, ¢ The technical staff salaries should be apportioned between Stores activity, production activity and quality inspection in 6:64:30 ratios. The consumption of activities during the year is as under: Direct labour hours worked 40,000 Direct wages rate % 60 per hour @ Production set-up 4,992 * Material and component consignments received from suppliers 1,500 ¢@ Number of quality inspection carried out 2,500 The data relating to two products manufactured by Garur Ltd. during the year are as under: pe oduct . Pa P2 “Direct material costs ¢ 45,000 3,200 ) Direct labour hours 960 109 E Direct material consignments received 48 oeProduct BA Gy Production runs 36 “ Number of quality inspections done 30 10 Quantity produced (units) 12,000 4,000 You are required: (i) Calculate the cost of product P-1 and P-2 based on the existing syste of single overhead recovery rate. (di) Determine the cost of product P-1 and P-2 using activity-based costing. ‘ : Se [June 2016, 15 Marks]O72 M. ite Production activity are as under: . Ltd. manufactures 4 products, viz., A,B, Cand D. he | data relating Product | Quantity | Material cost/ | Direct labour | Machine See nits), unit (2) hours/unit | hours/unit | costfunit (2) A 1,000 | io 1 0.50 6 | B 10,000 | 10 | 1 0.50 6 c 1,200 32 4.0 ct] 2 za | iD 14,000 34 3 8 ae | The Production overheads are as under: z Overhead applicable to machine-oriented activity 1,49,700 Overhead relating to ordering materials 7,680 # Set-up costs 17,400 Administration overheads for spare parts 34,380 ¢ Material handling costs 30,294 The following further information have been compiled: “Product | No. of set-up | No. of material No. of times No. of spare | orders material handled parts | A 3 3 6 6. | B ig | 12 30 1S cI f £ 5 3 9 3 P 24 12 36 2 Required: (i) Select a suitable cost driver calculate the cost per unit of for each item of overhead expense and f cost driver,ACLIVILY BASED COSTING 2.21/ selling three types of drugs . It has provided the following data er. namely ‘Drug S’, ‘Drug T’ and for year 2022-23 for each product : Drugs Type ; s T Zz | Revenues (in 2) 3 74,50,000 1,11,75,000 | 1,86,25,000 Cost of goods sold (in®) 41,44,500 | 68,16,750 | 1,20,63,750 Number of purchase orders placed (inNos.) 560 810 630SRE ON | Number of deliveries te Hours of shel-stocking time (in hours) Drugs Type 1 175,200 Units sold (in Nos.) 1,50,300 Following Additional information is also provided: Activity Description of Activity ar Cost Cost Allocation base ®) Drug License Drug License Fee 5,00,000 To be distributed in Fee ratio 2:3:5 between §, andZ, ‘Ondering | Placing orders for purchases | 8,30,000 2,000 purchase ordery Delivery | Physical delivery and receipt | 18,20,000 2,800 deliveries Customer | Assistance provided to cus- | 28,20,000 ‘Support tomers of goods ‘Shelf Stocking Stocking of goods _| 32,40,000 | 4,500hoursof | : : shelf-stocking time 4,70,000 units sold | i You are required to calculate the operating income and operating income as a percentage (%) of revenue for each product line if: the ratio of cost of goods sold. using Activity Based Costing System. @ All the support costs (other than cost of goods sold) are allocatedi @ All the support costs (other than cost of goods sold) are allocateé [uly 2023, 9