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Bunyod Partnership manufactures three products in a competitive market. Currently, selling prices are set based on 300% of prime cost because management decided that this
Bunyod Partnership manufactures three products in a competitive market. Currently, selling prices are set based on 300% of prime cost because management decided that this was easier than trying to incorporate overheads into product cost explicitly. However, with recurring losses being made, it has been decided to investigate whether activity- based costing (ABC) could generate a more reliable unit cost estimate, so as to assess the appropriateness of its current selling prices. Relevant summary data are given below: Product A Direct materials per unit 55 Direct labour per unit 40 B 30 50 100 60 Budgeted production volume Machine hours per unit Production runs Number of supplier deliveries 600 units 0.6 35 7 400 units 1.5 40 2 200 units 0.6 25 16 An ABC analysis has identified the following three cost pools and their associated overheads: Cost pool Machining Production set ups Material handling Costs Cost driver 77,760 Machine hours 82,900 Production runs 49,500 Supplier deliveries Required: a) Calculate the cost-driver rate for the three cost pools shown in the table shown above. b) Calculate the overheads to be charged to each product line based on ABC
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