Part A of the case study (traditional costing)

AKS Limited makes and sells three different motor parts: AKS001, AKS002 and AKS003.

Sales and production figures

The total forecast sales and production volume for the three motor parts for 2021 are 15 000 units. Expected sales volumes for each model are shown in the following table.

	AKS001	AKS002	AKS003
Sales and Production Volume	10 000	3 000	2 000

Direct costs of production

Prime costs are the direct materials and direct labour for each product. The estimated prime costs for the three products are shown in the following table.

Prime Cost Element	AKS001	AKS002	AKS003
Direct materials per unit	$55.00	$85.00	$105.00
Direct Labour per unit	$40.00	$30.00	$25.00
Total prime cost per unit	$95.00	$115.00	$130.00

Overheads

Indirect manufacturing costs are budgeted to be $810 000. These are currently allocated across the three product lines based on direct labour-hours (DLHs), as shown in the following table.

Cost driver transaction	AKS001	AKS002	AKS003
DLHs per unit	2.00	1.50	1.25

1. Use the current indirect manufacturing cost allocation method based on direct labour hours (DLHs) to calculate the budgeted:

(a) indirect manufacturing cost rate (1 mark)

Model	Budgeted volume X	DLHs per unit =	Total DLHs
AKS001
AKS002
AKS003	2 000	1.25	2 500
Total DLHs for product line
Total budgeted indirect manufacturing costs/total DLHs
Indirect manufacturing cost rate

(b) indirect manufacturing cost for each product (2 marks)

Indirect manufacturing cost	AKS001	AKS002	AKS003
Indirect manufacturing rate per DLH
DLHs per unit
Indirect manufacturing cost per unit
Budgeted sales volume
Indirect manufacturing cost

(c) total manufactured cost per unit for each product. (2 marks)

Indirect manufacturing cost	AKS001	AKS002	AKS003
Direct materials per unit			$105.00
Direct labour per unit			$25.00
Total prime costs per unit			$130.00
Indirect manufacturing cost per unit
Total manufactured cost per unit (Total prime costs per unit + Indirect manufacturing cost per unit)