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Case Study 2 M & M LLC is producing different range of chocolates mainly including fruits & nuts, caramel smooth, dark fantasy. Assume you are
Case Study 2
M & M LLC is producing different range of chocolates mainly including fruits & nuts, caramel smooth, dark fantasy.
Assume you are senior accountant of M & M LLC and comparing between both the methods of costing absorption and ABC system on the basis of following information:
Prime Cost Details: -
- RO 0.150 per unit on materials and RO 0.120 per unit on direct labour paid for fruits & nuts.
- RO 0.120 per unit materials and RO 0.100 per unit on direct labour paid for caramel smooth.
- RO 0.180 per unit on materials and RO 0.130 per unit on direct labour paid for dark fantasy.
Production detail: -
In the month of June Company is expected to produce 200,000 units of fruits & nuts; 150,000 units of caramel smooth; 100,000 units of dark fantasy.
Overheads, Activity and Cost Driver Details: -
- The labour hour per units 0.02 for fruits & nuts; 0.010 for caramel smooth; and 0.015 for dark fantasy.
- The production cost incurred RO 3,600. Machines runs 700 hours for fruits & nuts; 500 hours for caramel smooth; 400 hours for dark fantasy;
- The machine set-up cost incurred RO 2,800. The production runs 120 for fruits & nuts; 80 for caramel smooth; 75 for dark fantasy.
- The Procurement costs incurred RO 1,800. Number of purchase order 50 for fruits & nuts; 35 for caramel smooth; 45 for dark fantasy;
- The delivery costs incurred RO 900. Number of deliveries 42 for fruits & nuts; 40 for caramel; and 38 for dark fantasy.
Requirements: -
- Calculate total cost and cost per unit of each types of chocolate by applying absorption costing. [5 Marks]
- Calculate the total cost and cost per unit of each types of chocolate by applying ABC system. [5 Marks]
- Calculate the selling price by adding 20% mark up on cost for each brand of chocolate. Also, analyze over costing and under costing for each type of chocolate. [2.5 + 2.5 Marks]
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