REQUIRED

Use the information provided below to calculate the following:

3.1

Calculate the total manufacturing costs and the unit costs if all overheads costs are absorbed on a machine hour basis.

(6 marks)

3.2

Calculate the unit overheads costs using the ABC system.

(14 marks)

INFORMATION

Genmes Limited manufactures two products and the company is keen on applying the principles of the ABC system. Relevant information pertaining to the two products for a given period appear below:

Product A

Product B

Output in units

240

180

Machine hours per unit

7

5

R

R

Direct materials cost per unit

200

160

Direct labour cost per unit

98

70

The two products are similar and are usually produced in production runs of 20 units and sold in batches of 10.

Currently the production overheads are absorbed by using a machine hour rate, and the total of the production overheads for the period are as follows:

R

Machine department costs (rent, rates, depreciation and supervision)

20 640

Set-up costs

10 080

Stores receiving

7 440

Inspection/Quality control

4 200

Materials handling and dispatch

9 240

5

SA1

The cost drivers to be used for the overhead costs are as follows:

Cost

Cost driver

Set up costs

Number of production runs

Stores receiving

Requisitions raised

Inspection/Quality control

Number of production runs

Materials handling and dispatch

Orders executed

The number of requisitions raised on the stores was 40 for each product and the number of orders executed was 42, each order being for a batch of 10 of a product.