Rubenstein Ltd (R Ltd) is engaged in the canning of two types of peach brands; Nectarine...
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Rubenstein Ltd (R Ltd) is engaged in the canning of two types of peach brands; Nectarine (N) and Elberta (E). It processes and cans these two brands using the same production methods and equipment. R Ltd currently determines its prices by adding a certain mark-up to the budgeted full cost of the system. The fixed overheads are absorbed on the basis of labour hours. The following data is provided for the two product brands. Nectarine Production and sales demand Direct material (per unit) Labour costs (per hr) Labour hours (per unit) Total direct labour hours 2,500 Rs 60 Rs8 5 hrs 12,500 The Directors of R Ltd are considering assigning overheads to products thereby improving the accuracy of product pricing. After analysing the cost accounting data, the management accountant has come up with the following activities, budgeted cost pools and activity drivers. Cost Pool Set ups Materials handling and dispatch Stores receiving Machine running Elberta 7,500 Rs24 Rs3.2 5 hrs 37,500 Cost Driver Number of set ups Number of Order executed Number of requisitions raised Machine hours Costs relating to material handling & dispatch Costs relating to stores receiving Costs relating to machine running Total production overheads are Rs1,000,000 and are further analysed as follows: Costs relating to set-ups 15% 3.75% 6.25% 75% 100% The following total activity volumes are associated with each product line for the period as a whole: Product Z W N E Number of Set Ups 100 50 150 Material Handling & Dispatch 2,500 5,000 7,500 Stores Receiving Machine 2,500 3,750 6,250 Running 25,000 50,000 75,000 Required: (a) Calculate the product cost per unit using the current basis. (b) Calculate the product cost per unit using ABC analysis. (5 marks) (10 marks) (c) Compare and comment on the costs computed under the current system and the ABC system. (5 marks) (d) Explain the circumstances in which the use of activity based costing is likely to result in more meaningful information about product costs and profitability. (5 marks) Rubenstein Ltd (R Ltd) is engaged in the canning of two types of peach brands; Nectarine (N) and Elberta (E). It processes and cans these two brands using the same production methods and equipment. R Ltd currently determines its prices by adding a certain mark-up to the budgeted full cost of the system. The fixed overheads are absorbed on the basis of labour hours. The following data is provided for the two product brands. Nectarine Production and sales demand Direct material (per unit) Labour costs (per hr) Labour hours (per unit) Total direct labour hours 2,500 Rs 60 Rs8 5 hrs 12,500 The Directors of R Ltd are considering assigning overheads to products thereby improving the accuracy of product pricing. After analysing the cost accounting data, the management accountant has come up with the following activities, budgeted cost pools and activity drivers. Cost Pool Set ups Materials handling and dispatch Stores receiving Machine running Elberta 7,500 Rs24 Rs3.2 5 hrs 37,500 Cost Driver Number of set ups Number of Order executed Number of requisitions raised Machine hours Costs relating to material handling & dispatch Costs relating to stores receiving Costs relating to machine running Total production overheads are Rs1,000,000 and are further analysed as follows: Costs relating to set-ups 15% 3.75% 6.25% 75% 100% The following total activity volumes are associated with each product line for the period as a whole: Product Z W N E Number of Set Ups 100 50 150 Material Handling & Dispatch 2,500 5,000 7,500 Stores Receiving Machine 2,500 3,750 6,250 Running 25,000 50,000 75,000 Required: (a) Calculate the product cost per unit using the current basis. (b) Calculate the product cost per unit using ABC analysis. (5 marks) (10 marks) (c) Compare and comment on the costs computed under the current system and the ABC system. (5 marks) (d) Explain the circumstances in which the use of activity based costing is likely to result in more meaningful information about product costs and profitability. (5 marks)
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a Calculate the product cost per unit using the current basis Nectarine N Direct Material per Unit Rs 60 Labour Costs per Hour Rs 24 Labour Hours per Unit 5 hours Full Cost for Nectarine N Direct Mate... View the full answer
Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
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