Question One

Hero products ltd is a leading manufacturer of silver picture frames

The company uses the traditional costing system to allocate production overheads to products using machine hours.

The newly appointed Financial Controller believes that activity based costing can provide a better allocation of production overheads to products than the current system does. The following total production overheads for the last period were recorded by the cost accounting system;

Utiliy costs related to machine hours $

Productions set-up costs 189,000

Cost of ordering material 120,000

Number of Materail requisitions 18,000

Cost of handling materials 33,000

Details of the three product methods and relevant information for the last period are as follow;

Model 1 Model 2 Model 3

Number of production runs 17 25 18

Number of Material orders 20 30 40

Number of Material requisitions 30 100 70

Units produced 10,000 20,000 25,000

Machine hours per unit 1 1.5 2

Direct labour hours per unit($60per unit) 0.5HR 01HR 2HRS

Direct material per unit $10 $12 $15

Required

a) Calculate the unit production cost of each of the three products using

i) The traditional absorption costing

ii) The activity based costing approach

b) Desribe the advantages and disadvantages of Activity Based Costing (ABC)

Question two

Bat ltd, which is in the process of preparing the budgets for financial yea 20X6/7 presented the following data to you.

The company is estimated to sell the following units according to the given quarters

DETAILS QUARTER 1. QUARTER 2. QUARTER 3. QUARTER 4.

Units to be sold 4,000 4,500 6,000 8,000

The company's selling price is expected to be stable at $ 5,000 per unit

The production manager informed you that because of the changes in consumer behaviour, closing stock of 20% of the items sold in the same quarter should be maintained

You are also informed the producing a complete unit will require 2kilograms of raw material, since suppliers are unreliable, he advised that closing raw material of 5% of the next quarter's requirements should be maintained. however, he proposed that since production is unlikely after quarter 4, there will be no need of maintaining raw materials closing stock, Raw materials cost $ 500 per kg

Required: Prepare the company's

i) Sales budget

ii) Production budget

iii) Raw materials utilisation budget

iv) Raw materials purchase budget