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Having attended Cost analysis course at RMIT, you decide to experiment by applying the principles of activity-based costing to the four products currently made and
Having attended Cost analysis course at RMIT, you decide to experiment by applying the principles of activity-based costing to the four products currently made and sold by your company. Details of the four products and relevant information are given below for the recent accounting period. P Q R S 120 150 90 60 $60 Particulars Output (units) Direct material cost Direct labour cost Average number of items in inventory Machine hours per unit $50 $32 12 $40 $18 $80 $20 $24 15 9 6 5 4 3 2 Products P and Q are usually produced in production runs of 15 units while products R and S are usually produced in production runs of 10 units. Products P and R are sold in batches of 10 units while products Q and S are sold in batches of 15 units. The production overheads are currently absorbed by using a machine hour rate. For an activity-based analysis, you classified the total of the production overheads as follows: Particulars Machine department costs Set-up costs Storage costs Inspection costs Handling and dispatch costs Amount ($) 19,080 $5,610 $4,200 $1,590 $7,980 You have identified number of production runs as cost driver for set-up costs and inspection costs. Average number of items in inventory was identified as cost driver for storage costs, and number of orders executed was identified as cost driver for handling and dispatch costs. Required Calculate the total cost and cost per unit for each product using activity based costing
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