Calculation of ABC product costs and a discussion of the usefulness of ABC Trimake Limited makes three main products, using broadly the same production methods and equipment for each. A conventional product costing system is used at present, although an activitybased costing (ABC) system is being considered.

Details of the three products for a typical period are:

Direct labour costs £6 per hour and production overheads are absorbed on a machine hour basis.
The rate for the period is £28 per machine hour.

(a) You are required to calculate the cost per unit for each product using conventional methods.
(4 marks)
Further analysis shows that the total of production overheads can be divided as follows:

The following activity volumes are associated with the product line for the period as a whole.
Total activities for the period:

You are required

(b) to calculate the cost per unit for each product using ABC principles; (15 marks)

(c) to comment on the reasons for any differences in the costs in your answers to

(a) and (b).
(3 marks)
(Total 22 marks)
CIMA Stage 3 Management Accounting Techniques

Transcribed Image Text:

Hours per unit Materials Volumes per Labour Machine unit hours hours () Units Product X Product Y 1 1772 12 12 1 Product Z 1 3 222 20 750 12 1250 25 7000