1 Managerial Accounting Quiz 3 Hen has a single production process, for which the following costs have been estimated for the period ending 31st December Year 7: Material receipt and inspection costs Power Costs Material Handling costs GHC 31,200 39,000 27,300 Hen makes three products- X, Y and Z. These products are made by the same group of employees, using power drills. The employees are paid GHC 8 per hour. The following budgeted information has been obtained for the period ending 31st December Year 7: Z Production quantity (units) 2,000 Quantity/Batch 200 For each unit of product Direct material (meters) Direct material cost (GHC) Direct labour (minutes) Number of power drill operations (per unit) 300 53.3333 6 2.5 3 6 40 60 4 5 Overhead costs are currently absorbed into the cost of production units using an absorption rate per direct labour hour. A factory-wide absorption rate is used for work in all the production departments. An activity-based costing investigation has revealed that the cost drivers for the overhead costs are as follows: Material receipt and inspection: number of batches of material Power: number of power drill operations Product X Product Y Product 1,500 800 5 4 24 8 Material handling: quantity of material (metres) handled. Required: Using the activity-based costing approach, calculate the production cost per unit for product X, product Y and product Z. Question 2 HP - Africa produces pavilion laptops specific for the African market. A branch to serve the African region is situated on Accra, Ghana. HP-Africa has the capacity to produce 40,000 laptops per year but all realistic estimates of its new business environment warrant sales will exceed 30,000 laptops per year for the next two years. In a bid to improve profitability, the company has hired to study the cost structure of the company and make a recommendation. Your observation revealed the following: Production costs: Variable - GHS 1,150 per laptop Fixed - GHS 2,500,000 for 30,000 laptops Selling and administrative expenses: Variable - GHS 150 per laptop Fixed - GHS 1,800,000 During the year ended 31 December 2019, HP - Africa sold 28,000 Pavilion laptops to Ashesi University for GHS 1,400 each. Required: i. Determine the unit cost of production under both absorption and marginal costing systems. ii. Prepare an income statement under the absorptions and determine profit for the period iii. Assuming the company uses variable costing, compute the unit product cost and prepare an income statement for the year iv. Prepare a reconciliation statement and explain the difference between absorption costing and variable costing net operating income in that year