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Kronkite Concrete processes and distributes several types of cement products. Management needs to get detailed information on their costs in a very competitive market. They
Kronkite Concrete processes and distributes several types of cement products. Management needs to get detailed information on their costs in a very competitive market. They have started an ABC costing model to help with their pricing and profitability. They have identified the following activity related information for production overhead costs: Materials handling is related to the volume of materials used in the products. Direct labour is incurred for mixing, blending and packaging of the products. Scheduling and support is related to the number of production batches. Activity Cost Pools Activity Measure Annual Overhead $ Materials handling Machinery equipment Scheduling and support Expected Annual Activity Levels 5,000,000 8,000 2,000 Materials kilograms Machine hours Production Batches 375,000 683,200 111,500 The following data is available for two of the cement products. Direct materials per bag Direct labour per bag $ $ Normal 6.00 $ 0.50 $ High Test 9.00 0.50 Machine hours per bag Concrete per bag (Kilograms) Bags of concrete per batch 0.08 50 500 0.10 50 200 Required: 1. Compute the activity rate for each of the activities. Round to 3 decimal places. 2. Compute the unit cost per bag of concrete product under ABC costing. 3. Under the traditional costing system, the production overhead charged to each bag is $11.70. Compute the traditional inventory value for the two cement products 4. Kronkite Concrete prices their products by marking up the traditional inventory value by 25%. Compute the product selling prices and then use the ABC derived product costs to determine the contribution and profitability of the two concrete products
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