Question
ACE Ltd has a single production process for which the following costs have been estimated for the period ending 31 December 2020: Material receipt and
ACE Ltd has a single production process for which the following costs have been estimated for the period ending 31 December 2020:
Material receipt and inspection cost | 31,200 |
Power cost | 39,000 |
Material handling cost | 27,300 |
Three products X, Y and Z are produced by workers who perform a number of operations on material blanks using hand-held electrically powered drills. The workers have a wage rate of 7.50 per hour.
The following budgeted information has been obtained for the period ending 31 December 2020:
Product X | Product Y | Product Z | |
Production quantity (units) | 4,000 | 3,000 | 1,600 |
Batches of material | 20 | 10 | 32 |
Data per product unit: | |||
Direct material (sq metres) | 8 | 12 | 6 |
Direct material () | 10 | 6 | 12 |
Direct labour (Minutes) | 24 | 40 | 60 |
Number of power drill operations | 12 | 6 | 4 |
Overhead costs for material receipt and inspection, process power and material handling are presently each absorbed by product units using rates per direct labour hour.
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
Process power: number of power drill operations
Material handling: quantity of materials (sq metres) handled
Required: Prepare a summary which shows the budgeted product cost per unit for each of products X, Y and Z for the period ending 31 December 2020 detailing the unit costs for each cost element: (i) using the existing method for the absorption of overhead costs and (ii) using activity based costing
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