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 ($1,360,000) 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) | 14000 | 6000 | 2000 | 9000 | 31000 |
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| RESOURCE USE PER UNIT |
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| Raw Materials | 3 | 4 | 5 | 10 | 156000 |
| Labour Hours | 2 | 1 | 1.5 | 3 | 64000 |
| Machine Hours | 1 | 1.5 | 2 | 1 | 36000 |
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| UNIT PRODUCTION COSTS |
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| Raw Materials | $12 | $16 | $20 | $40 | $664000 |
| Direct Labour | $28 | $14 | $21 | $42 | $896000 |
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| OVERHEAD ACTIVITIES |
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| Machining (per hour) | $10 | $10 | $10 | $10 | $360000 |
| Engineering Set-ups | 4 | 5 | 8 | 3 | $75000 |
| Component Receipts | 40 | 60 | 60 | 40 | $380000 |
| Orders Packaged | 14 | 18 | 21 | 7 | $285000 |
| Distribution Deliveries | 15 | 40 | 25 | 20 | $260000 |
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)
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| 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 Answer
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Intermediate Accounting IFRS
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
3rd edition
978-1119372936
