Question
Aspra manufactures three types of equipment X, Y and Z The company has been experiencing steady declines in its profitability in recent times. Aspra currently
Aspra manufactures three types of equipment X, Y and Z The company has been experiencing steady declines in its profitability in recent times. Aspra currently uses conventional product costing system whereby overhead costs are allocated on the basis of direct labour hours. The direct labour hours are estimated to be 50,000 hours. The Direct material and Direct Labour costs per unit for the three products are as below:
X | Y | Z | |
---|---|---|---|
Direct Material | $360 | $500 | $600 |
Direct Labour | $50 | $200 | $100 |
The management suspects that conventional product costing system used may have contributed to the profit declines. Therefore , the ceo implemented an alternative system namely, activity-based product costing system. Given below are each activity, its cost and its related activity driver.
Activity | Cost | Activity Driver |
---|---|---|
Material handling | $ 2,600,000 | Number of parts |
Machining | $ 1,500,000 | Machine hours |
Cutting | $ 400,000 | Labour hours |
Total manufacturing cost | $ 4,500,000 |
The following information pertains to each product line of Aspra for the year:
X | Y | Z | |
---|---|---|---|
Units to be produced | 10000 | 5000 | 20,000 |
Machine hours per unit | 5 | 3 | 0.5 |
Parts per unit | 2 | 5 | 1 |
Labour hours per unit | 1 | 4 | 1 |
1) Calculate the predetermined overhead rate based on Direct labour hours
2) Calculate the cost per unit under conventional product costing system? Product X, Y and Z 3)Determine the total overhead allocated to each of the three products
X | Y | Z | |
---|---|---|---|
Material handling | |||
Machining | |||
Cutting |
4) Determine the total cost per unit of producing each product if activity based costing were to be used.
for product X Y and Z
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