Question
The Longley Corporation Ltd is considering whether to introduce activity based costing to determine the cost of each of its four products. The company is
The Longley Corporation Ltd is considering whether to introduce activity based costing to determine the cost of each of its four products. The company is currently using a conventional costing system whereby the total overhead costs ($1,650,000) are allocated on the basis of the number of direct labour hours. The table below provides information in relation to the cost of each of the products and the extent to which each of the products consume various resources. PRODUCTS A B C D TOTAL Output (units) 16000 4000 7000 12000 39000 RESOURCE USE PER UNIT Raw Materials 3 4 5 10 219000 Labour Hours 2 1 1.5 3 82500 Machine Hours 1 2.5 2 2 64000 UNIT PRODUCTION COSTS Raw Materials $12 $16 $20 $40 $876000 Direct Labour $28 $14 $21 $42 $1155000 OVERHEAD ACTIVITIES Machining (per hour) $10 $10 $10 $10 $640000 Engineering Set-ups 3 6 7 4 $60000 Component Receipts 40 55 65 40 $360000 Orders Packaged 13 17 11 9 $280000 Distribution Deliveries 15 35 35 15 $310000 Please only enter numbers below i.e. no dollar signs or commas. Required: (a) Calculate the cost of each of the four products if the conventional costing approach is used. (2 marks) Product A Product B Product C Product D Direct Material cost per unit $12 $16 $20 $40 Direct Labour cost per unit $28 $14 $21 $42 Overhead cost per unit Answer Answer Answer Answer TOTAL COST PER UNIT Answer Answer Answer Answer (b) Determine the TOTAL OVERHEAD COST ALLOCATED TO EACH PRODUCT IN RESPECT TO EACH OVERHEAD ACTIVITY if activity based costing were to be used. (5 marks) Overhead activities Product A Product B Product C Product D Machining Answer Answer Answer Answer Engineering setups Answer Answer Answer Answer Component receipts Answer Answer Answer Answer Orders packaged Answer Answer Answer Answer Distribution deliveries Answer Answer Answer Answer (c) Determine the TOTAL COST PER UNIT of producing each product if activity based costing were to be used. (1 mark) NB Round your answers up to 2 decimal places. Product A Answer Product B Answer Product C Answer Product D AnswerBottom of Form
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