The number of requisitions raised on the stores was 20 for each product and the number of orders executed was 42, each order being for a batch of 10 of a product. QUESTION 2 You are just from attending a conference on Activity Based Costing (ABC) and you now wish to put your knowledge to practice by applying the principles of ABC to the four products currently made and sold by your client. Details of the four products and relevant information are given below for one period. Required: (a) Calculate the total cost for each product if all overhead costs are absorbed on a machine hour basis. (4 Marks) A B (b) Calculate the total cost for each product using activity based costing. D (10 Marks 120 100 80 120 K K K Product Output in units Costs per unit Direct materials Direct labour Machine hours (per unit) K 40 (c) Calculate and list the unit product costs from your figures in (a) and (b) above to show the differences and to comment briefly on any conclusions which may be draw which could have pricing and profit implications. (8 Marks) 50 30 60 28 21 14 21 (d) Explain briefly three (3) circumstances which call for the application of activity base costing as opposed to absorption costing. (3 Marks) 4 3 2 3 QUESTION 3 The four products are similar and are usually produced in production runs of 20 units and sold in batches of 10 units. The production overhead is currently absorbed by using a machine hour rate, and the total of the production overhead for the period has been analysed as follows: Cost estimation is one of the key tools in a manager's toolbox. However, several approache are at the disposal of a manager the course of undertaking cost estimation. (a) Identify three (3) approaches that a manager can use for estimating costs in the cours of decision making. (3 Marks) K C 10,430 5,250 Machine department costs (rent, business rates, depreciation and supervision) Set-up costs Stores receiving Inspection/quality control Materials handling and dispatch 4 3,600 2,100 4,620 1 (b) A company has the following cost and activity data taken from past records. Cost (Y) Activity (units, X) XY K lo 224 56 310 62 5 25 80 7 S60 44 72 7 sot 88 9 792 2 94 10 1460 SY: 450 EX=4 2390 EXY Determine a linear regression equation that shows the behaviour of costs in relation to unit produced given that You have ascertained that the cost drivers' to be used are as listed below for the overhead costs shown: Cost = an + Set-up costs Stores receiving Inspection quality control Materials handling and dispatch Cost driver Number of production runs Requisitions raised Number of production runs Orders executed = X + Where n= number of pairs of cost and activity figures. (12 Marks) (c) A cost accountant has calculated that the coefficient of correlation (r) from the abov dataset is 0.98. Interpret the meaning of this figure. (5 Marks) 1284 40+ +80+ 300+160 4 3891 1313 1260