Assignment Question(s):

ABC Corporation makes three types of products and currently uses traditional product costing system. The management is considering using activity based costing. Below is the details on the tree products

Products	Labor hour per unit	Machine hours per unit	Material cost per unit SR	Volume of productions (Units)
Product A	1.5	0.5	20	1,000
Product B	1	1.5	25	5,000
Product C	0.5	1.0	30	1,500

Total manufacturing overhead are SR 750,000. In- depth analysis for overheads has been done to apply activity based costing as follows:

Activities	Activitys Overheads cost pool
Set- ups	150,000
Machinery	200,000
Material handling	125,000
Inspection	275,000
Total	750,000

The actual quantity used of activities by products as follows:

Products	Set- ups	Machinery (hours)	Material handling	Inspection
Product A	100	500	15	20
Product B	120	7,500	30	150
Product C	300	1,500	90	700
Total	520	9,500	135	870

Direct labor rate is SR 5 per hour and overhead allocated to products under traditional costing system using machine hour as allocation base.

Required:

1. Calculate cost per unit per each product under traditional costing system.
2. Calculate cost per unit per each product under activity based costing.
3. Comment on results.

Answer:

2. In 2020, ABC Company produces a single product with the following information:

Variable cost per unit:	SR
Direct martial PER UNIT	8
Direct labor per unit	10
Manufacturing over head	5
Variable selling expense per units sold	2

Additional information:	SR
Fixed manufacturing costs per year	150,000
Fixed selling and administrating expenses per year	150,000
Number of units produced	20,000
Selling price per unit	50

Required:

1. Prepare income statement using absorption costing and variable costing assuming all 20,000 units sold.
2. Prepare income statement using absorption costing and variable costing assuming all 15,000 units sold and 5,000 units unsold.
3. Comment on results explaining which costing method produces more profit in case of inventory.

Answer: