K CONFIDENTIAL Exam Question 1 [28] Nkwa-Dich Limited manufactures three products, namely A, B and C. Currently the enterprise uses traditional system of overhead allocation. Nkwa-Dich, however wants to investigate an activity based costing system. The following details are provided. Material cost per unit Labour time per unit Machine hours per unit Production volume A B C R15 R10 20 20 minutes 1 hour 1 000 units 2003 75 minutes 2 hours 60 minutes 2 hours 2 000 units 5 000 units Direct labour cost is R12 per hour and production overheads are absorbed on a machine hour basis at R20 per machine hour. Budgeted manufacturing overhead amounts to R360 000. An investigation of the different activities showed the consumption of resources per activity in terms of value (cost thereof) as follows: Set ups 28% Material procurement 12% Inspection 32% Machining 28% Activity volumes for the production process are as follows, on a per product type basis: ABC Product SET UPS NO OF ORDERS 50 150 110 225 240 425 NO INSPECTIONS 200 225 375 OF REQUIRED 1.1 Calculate the production cost per unit and in total using the traditional cost allocation. system. (6) 1.2 Calculate the production cost in total and per unit using the ABC system. (22) 133 Exam 23201