A company produces two products A and B. 900 units of A, and 300 units of...
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A company produces two products A and B. 900 units of A, and 300 units of B are normally produced and sold each year. Unit information regarding the manufacture of A and B is as follows: Labour Hours per unit Machine hours per unit Batch size (# of units) Direct Cost per unit Materials Labour 10 10 20 45 200 150 50 B 15 20 5 60 300 225 75 The company incurs the following overheads during the year: Depreciation* 150,000 Maintenance Practical Mhrs - F Shipping-Actual Batches -V- Electricity-Actual Mhrs - V Quality Assurance* -Practical Batches - F Factory Rent Total Overheads 50,000 100,000 120,000 80,000 81,000 581,000 *these costs are considered to be fixed costs, at the company's current production capacity. Activity Based Costing Overheads are currently allocated on labour hours (labour is a variable cost in this example). The company has a total practical capacity of 15 000 labour hours. The company is considering allocating overheads in accordance with ABC. 2 Cost drivers have been identified - Machine hours (practical capacity 16 000 hours) and number of batches (practical capacity 120 batches of any size). A requires 10 machine hours per unit and is typically manufactured in batches of 20 units. B requires 20 machine hours per unit and is only manufactured in batch sizes of 5 units. Machine hours have been identified as a cost driver for depreciation, maintenance and electricity, while shipping and quality costs are driven by the number of batches produced. REQUIRED 1. Calculate the unit and total cost for each product under the traditional method and under ABC. Discuss the appropriateness of allocating (a) Depreciation, and (b) Factory rent under ABC. A company produces two products A and B. 900 units of A, and 300 units of B are normally produced and sold each year. Unit information regarding the manufacture of A and B is as follows: Labour Hours per unit Machine hours per unit Batch size (# of units) Direct Cost per unit Materials Labour 10 10 20 45 200 150 50 B 15 20 5 60 300 225 75 The company incurs the following overheads during the year: Depreciation* 150,000 Maintenance Practical Mhrs - F Shipping-Actual Batches -V- Electricity-Actual Mhrs - V Quality Assurance* -Practical Batches - F Factory Rent Total Overheads 50,000 100,000 120,000 80,000 81,000 581,000 *these costs are considered to be fixed costs, at the company's current production capacity. Activity Based Costing Overheads are currently allocated on labour hours (labour is a variable cost in this example). The company has a total practical capacity of 15 000 labour hours. The company is considering allocating overheads in accordance with ABC. 2 Cost drivers have been identified - Machine hours (practical capacity 16 000 hours) and number of batches (practical capacity 120 batches of any size). A requires 10 machine hours per unit and is typically manufactured in batches of 20 units. B requires 20 machine hours per unit and is only manufactured in batch sizes of 5 units. Machine hours have been identified as a cost driver for depreciation, maintenance and electricity, while shipping and quality costs are driven by the number of batches produced. REQUIRED 1. Calculate the unit and total cost for each product under the traditional method and under ABC. Discuss the appropriateness of allocating (a) Depreciation, and (b) Factory rent under ABC.
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ANSWER Unit and Total Cost Calculation a Traditional Method Under the traditional method overheads are allocated based on direct labor hours The total overhead cost allocated to the products is calcul... View the full answer
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ
Posted Date:
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