MANAGEMENT ACCOUNTING - ABC COSTING EXERCISES

Q1

Company XYZ has 2 fixed-price contracts for 2 different clients. The company has enough capacity for both contracts but is uncertain whether they will be profitable.

Data as follows:

Customer AAA BBB

Component typer A999 B999

Contract value ($) $27,00 $100,000

Contract quantity 1000 unit 2000 unit

Material cost/unit $15 $20

Moulding time/batch 5hours 7.5hours

Batch size 100 units 50 unit

Annual Budgeted overheads as follows :

Activity cost Driver cost driver volume/yr cost pool

Moulding Moulding hours 2000 $150,000

Inspection Batches 150 $75,000

Production mgt Contracts 20 $125,000

Required:

(a) Calculate the activity-based costs and profits for each contract

(b) Calculate the profit for each job using Absorption costing. Absorb overheads using moulding ours.

Q2

Company XYZ has 6 standard products from stainless, steel, and brass. The company's most popular product is Product XX

The following are Product XX's data for next year budget:

Activity Cost Driver Cost driver volume/yr cost pool

Purchase purchase orders 1,500 $75,000

Setting Batches produced 2800 $112,000

Materials handling Materials movement 8000 $96,000

Inspection Batches produced 2800 $70,000

Machining cost machine hour 50,000 $150,000

Purchase order 25

Output 15,000 units

Production batch size 100 units

Materials movement

Per batch 6

Machine hour per unit 0.1

Required:

(a) Calculate the budgeted overhead costs using activity-based costing principles

(b) Calculate the budgeted overhead costs using absorption costing (absorb overhead using machine hours)

(c) How can the company reduce the ABC for Product XX