Question 1: Activity-Based Costing (ABC)

Doris Ltd manufactures two models of medical devices for blood testing as follows: N80 and N90. The company is currently using the traditional (absorption) costing method and overhead is applied to the products based on the number of units. Doris Ltd has decided to adopt activity-based costing (ABC) in the coming year. The company data concerning the current periodsoperations appear below:

	N80	N90
Units produced	60,000	10,000
Number of parts needed (per unit)	12	20
Price of parts (per part)	$8	$6
Time per unit (minutes)	10	15
Labour hourly rate	$18	$20

From the companys management information system, you extract the following information on activities, costs and activity drivers for the current period:

Activity	Expected Cost
Batch level activities:
Machine set-up (number of machine set-ups)	$165,000
Materials ordering (number of orders)	$180,000
Machine hours (machine hours)	$120,000
Injection moulding (injection moulding batches)	$18,000
Product level activities:
Product design (number of product designs)	$10,000
Product requisitions handling (number of product requisitions)	$90,000
Customer level activities:
Customer order (number of customer orders)	$9,000
Facility level activities:
Security (square metres of facilities)	$36,000
Total Overhead	$628,000

Activity drivers for the current period	N80	N90
Number of machine set-ups	100	200
Number of orders	2,000	3,000
Machine hours	8,000	12,000
Injection moulding batches	8	2
Number of product designs	20	30
Number of product requisitions	12,000	6,000
Number of customer orders	200	250
Square metres of facilities	1,200	1,800

5

Question 1 continued:

Required:

1. Compute the predetermined overhead rate under the current absorption costing method and determine the full unit product cost of each product. Round the unit costs and all other costs to 4 decimal places.

2. Determine the full unit product cost of each product using the activity-based costing approach. Round the unit costs and all other costs to 4 decimal places.

   (Total marks for the question 32 marks)

Enter your answers for the following sub-questions in Part A on Canvas. Enter all your answers as numbers without the $ sign. Ensure you show the working for all sub-parts in your Part B Word document.

NO	Sub-question	Marks
1	How much is the overhead rate per unit for N80 under current traditional costing?	2
2	How much is the overhead rate per unit for N90 under current traditional costing?	2
3	How much is the full product cost per unit for N80 under current traditional costing?	2
4	How much is the full product cost per unit for N90 under current traditional costing?	2
5	How much is the Unit level overhead rate per unit for N80 under ABC?	2
6	How much is the Unit level overhead rate per unit for N90 under ABC?	2
7	How much is the Batch level overhead rate per unit for N80 under ABC?	2
8	How much is the Batch level overhead rate per unit for N90 under ABC?	2
9	How much is the Product level overhead rate per unit for N80 under ABC?	2
10	How much is the Product level overhead rate per unit for N90 under ABC?	2
11	How much is the Customer level overhead rate per unit for N80 under ABC?	2
12	How much is the Customer level overhead rate per unit for N90 under ABC?	2
13	How much is the Facility level overhead rate per unit for N80 under ABC?	2
14	How much is the Facility level overhead rate per unit for N90 under ABC?	2
15	How much is the Full unit cost per unit for N80 under ABC?	2
16	How much is the Full unit cost per unit for N90 under ABC?	2
Total marks for the question		32