Activity Based Costing

1.
2.

3. A company uses activity-based costing to calculate the unit cost of its products. The
figures for Period 3 are as follows: production set-up costs are $84,000. Total
production is 40,000 units of each of product’s A and B, and each run is 2,000 units of
A or 5,000 units of B. What is the set-up cost per unit of B (to 2 decimal places)
 4. The ABC Company manufactures two products, product Alpha and Product Beta. Both
are produced in a very labour-intensive environment and use similar processes. Alpha
and Beta differ by volume. Beta is a high-volume product, while Alpha is a low-volume
product. Details of product inputs, outputs and the costs of activities are as follows:

5. A company which makes two products Alpha & Zeta uses ABC to absorb its overheads.
It has recently identified a new overhead cost pool for inspection costs and has decided
that the cost driver is the number of inspections. The following information has been
provided:

Particulars Alpha Zeta

Production volume (Units) 2500 8000
Machine Hours/Unit 1 1.5
Units/ Batch 500 1000
Inspections/Batch 4 1
Total inspection cost 250000

What is the inspection cost per unit of product Alpha?

Target Costing
1. The selling price of product Zigma is set to be $250 for each unit and sales for the
coming year are expected to be 500 units. The company requires a return of 15% in
the coming year on its investment of $250,000 in product Zigma. What is the target
cost for each unit of Zigma for the coming year? Select from the list as appropriate.
2. The predicted selling price for a product has been set at $56 per unit. The desired
mark-up on cost is 25% and the material cost for the product is estimated to be $16
before allowing for additional materials to allow for shrinkage of 20% (for every 10 kg
of material going in only 8 kg comes out). If labour is the only other cost and 2 hours
are needed what is the most the business can pay per hour if a cost gap is to be
avoided? The maximum rate per hour is (2 d.p)

3. The selling price of product X is set to be $500 for each unit and sales for the coming
year are expected to be 500 units. The company requires a return of 20% in the coming
year on its sales. What is the target cost for each unit of Product X for the coming
year?