Activity Based Costing

1. A firm provides you with the following details

Activities Cost of activities Cost driver
Set-up costs 1,00,000 No. of set-ups ,000
!uality control costs ",000 No. of inspection 00
#aterial procurement costs $,%00 No. of orders 1,$00
&ngineering drawings costs ',(00 No. of drawings )"0
#achinery costs $,"0,000 No. of machine hours (*,000
+or a ,atch of %,00 units of -art no. ./')$), having direct material and direct la,our costs of
0s. ',%1,%'0, the usage of activities is as follows
Set ups 1)
No. of inspections $'
-urchase orders 1$0
&ngineering drawings (
#achine hours $(%0
Calculate per unit cost of -art no. ./')$).
2. #1s - 2arua ma3es four products A, 2, C and 4 with details as under
5utput #achine hrs. 4irect la,our #aterial cost No. of prod- #aterial
per unit hrs. per unit per unit uction runs component
in a period per unit
A % % % 0s. '0 ' "
2 % $ $ 0s. *0 $
C %0 % % 0s. *0 ) "
4 %0 $ $ 0s. '0 10 *
%$
4irect la,our cost is 0s. * per hour.
5verhead costs6
Schedule cost ),*"0
Set-up costs ',*00
#aterial handling costs ),*0
1",('0
Ascertain the product costs
7i8 under conventional costing using machine hour overhead a,sorption rate, and
7ii8 using A2C with following cost drivers
Scheduling costs No. of production runs
Set up costs No. of production runs
#aterial handling costs No. of components
3. 9rima3e .imited ma3es three main products, using ,roadly the same production methods and
e:uipment for each. Conventional product costing system is used at present, although an Activity
2ased System 7A2C8 is ,eing considered. 4etails of the three products for a period are as
follows
-roduct .a,our hours1unit #achine hours1unit #aterials1unit ;olume 7in units8
/ 0. 1. 0s. %0 )0
< 1. 1.0 0s. 1% 1,%0
= 1.0 '.0 0s. % ),000
4irect la,our costs 0s. * per hour and production overheads are a,sor,ed on a machine hour
,asis > 0s. %" per machine hour. Calculate the cost per unit for each product using conventional
costing method.
1
+urther analysis shows that the total of production overheads can ,e divided as follows
Costs relating to set ups '?
Costs relating to machinery %0?
Costs relating to material handling 1?
Costs relating to inspection '0?
9he following activity volumes are associated with the product line for the period as a whole6
-roduct No. of set ups No. of movements of materials No. of inspections
/ ) 1% 10
< 11 %1 1"0
= $"0 ") *)0
9otal *)0 1%0 1,000
Calculate the cost per unit of each product using A2C principles.
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