V Best J + X its itslear Sht X https: https: & https: & https: https: w exerci Micro & magic Cours w Word w vo C centria.itslearning.com/CustomActivity/Proxy/MediaPreviewHandler.ashx?CustomActivityld= 104409&Childld=0&fileRepold=FzM2GzOhUEyn%2Bp... W X . .. 2 15 - + 70% > > Q2. Bricks Oy is a building business that provides a range of building services to the public. Recently they have been asked to quote for garage conversions and extensions to properties and have found that they are winning fewer garage conversion contracts than expected. Bricks has a policy to price all jobs at budgeted total cost plus 50%. Overheads are currently absorbed on a labour hour basis. Bricks thinks that a switch to activity based costing (ABC) to absorb overheads would reduce the cost associated to garage conversion and hence make them more competitive. You are provided with the following data: Overhead Annual Activity driver Total number category overheads $ of activities per year Supervisors 90,000 Site visits 500 Planners 70,000 Planning documents 250 Property related 240,000 Labour hours 40,000 Total 400,000 A typical garage construction costs $3,500 in materials and takes 300 labour hours to complete. A garage construction requires only one site visit by a supervisor and needs only one planning document to be raised. The typical extension costs $8,000 in materials and takes 500 hours to complete. An extension requires six site visits and five planning documents. In all cases labour is paid $15 per hour. Required: (a) Calculate the cost and quoted price of a garage construction and of an extension using labour hours to absorb the overheads (b) Calculate the cost and the quoted price of a garage construction and of an extension using ABC to absorb the overheads. (c) Assuming that the cost of a garage construction falls by nearly 7% and the price of an extension rises by about 2% as a result of the change to ABC, suggest possible pricing strategies for the two products that Bricks sells and suggest two reasons other than high prices for the current poor sales of the garage construction. d) One Bricks manager has suggested that only marginal cost should be included in budget cost calculations as this would avoid the need for arbitrary overhead allocations to products. Briefly discuss this point of view and comment on the implication for the amount of mark-up that would be applied to budget costs when producing quotes for jobs. 10 . C Aurinkoista L ~ ON ENG 20.51 2 FI 05/05/2022V its itslear Sht X https: https: & https: https: & https: w exerci Micro & magic Cours w Word w vo Best J + X C centria.itslearning.com/CustomActivity/Proxy/MediaPreviewHandler.ashx?CustomActivityld=104409&Childld=0&fileRepold=FzM2GzOhUEyn%2Bp... I X . .. 3 15 - + 70% > > Q3. Polar Watch Oy makes three types of gold watch -the Diva (D), the Classic (C) and the Poser (P). A traditional product costing system is used at present; although an activity based costing (ABC) system is being considered. Details of the three products for a typical period are: Hours per unit Materials Production Labour hours Machine hours Cost per unit ($) Units Product D 1 1/2 20 750 Product C 11/2 12 1,250 Product P 25 7,000 Total production overheads are $654,500 and further analysis shows that the total production overheads can be divided as follows: % Costs relating to set-ups 35 Costs relating to machinery 20 Costs relating to materials handling 15 Costs relating to inspection 30 Total production overhead 100 The following total activity volumes are associated with each product line for the period as a whole: Number of Number of movements Number of Set ups of materials inspections Product D 75 12 150 Product C 115 21 180 Product P 480 87 670 670 120 1,000 Direct labour costs $6 per hour and production overheads are absorbed on a machine hour basis. The overhead absorption rate for the period is $28 per machine hour. Required: (a)Calculate the cost per unit for each product using traditional methods, absorbing overheads on the basis of machine hours. (b) Calculate the cost per unit for each product using ABC principles (work to two decimal places). (c) Explain why costs per unit calculated under ABC are often very different to costs per unit calculated under more traditional methods. (d) Discuss the implications of a switch to ABC on pricing and profitability. 10 . C ~ ON ENG 20.51 2 Aurinkoista L FI 05/05/2022V X its itslear Sht X https: https: & https: & https: & https: w exerci Micro & magic Cours w Word w VO Best J + C centria.itslearning.com/CustomActivity/Proxy/MediaPreviewHandler.ashx?CustomActivityld=104409&Childld=0&fileRepold=FzM2GzOhUEyn%2Bp... I X . .. 4 15 + 70% > > Q4. Company XYZ has 2 fixed price contracts for 2 different clients. The company has enough capacity for both contracts but is uncertain whether they will be profitable Data as follows: Customer AAA BBB Component Type A999 3999 Contract Value($) $27,000 $100,000 Contract Quantity 1,000 unit 2,000 units Material cost/unit $15 $20 Moulding time/batch 5 hours 7.5 hours Batch Size 100 units 50 units Annual Budgeted overheads as follows: Activity Cost Driver Cost driver Cost volume/yr pool Moulding Moulding hours 2,000 $150,000 Inspection Batches 150 $75,000 Production Contracts 20 $125,000 Management Required: ulate the activity based costs and profits for each contract (b) Calculate the profit for each job using Absorption costing. Absorb overheads using moulding hours. 10 . C ~ ON ENG 20.51 2 Aurinkoista B L FI 05/05/2022V Best J X its itslea Sht X https: https: & https: & https: https: w exerci Micro & magic Cours w Word w VO + -) C centria.itslearning.com/CustomActivity/Proxy/MediaPreviewHandler.ashx?CustomActivityld=104409&Childld=0&fileRepold=FzM2GzOhUEyn%2Bp... W X . .. ED 5 15 + 70% > > Q5. Company XYZ has 6 standard products from stainless steel and brass. The company's most popular product is Product XX The following are Product XX's data for next year budget: Activity Cost Driver Cost driver Cos volume/yr pool Purchasing Purchase orders 1,500 $75,000 Batches Setting 2,800 $112,000 produced Materials Materials 8,000 $96,000 handling movements Inspection Batches 2,800 $70,000 produced Machining Machine hours 50,000 $150,000 costs Purchase orders 25 Output 15,000 units Production batch size 100 units Materials movements 6 per batch Machine hours per 0.1 unit Required: (a) Calculate the budgeted overhead costs using activity based costing principles (b) Calculate the budgeted overhead costs using absorption costing (absorb overhead using machine hours c) How can the company reduce the ABC for Product XX 10 . C ~ ON ENG 20.51 Aurinkoista O L 2 FI 05/05/2022V X its itslear Sht X https: https: https: & https: & https: w exerci Micro & magic Cours w Word w vo Best J + C centria.itslearning.com/CustomActivity/Proxy/MediaPreviewHandler.ashx?CustomActivityld= 104409&Childld=0&fileRepold=FzM2GzOhUEyn%2Bp... I X . . 1 15 + 90 % > > Management Accounting - ABC Costing exercises Q1. The Gadget Co produces three products, A, B and C, all made from the same material. Until now, it has used traditional absorption costing to allocate overheads to its products. The company is now considering an activity based costing system in the hope that it will improve profitability. Information for the three products for the last year is as follows: B C Production and sales volumes (units) 15,000 12,000 18,000 Selling price per unit $7.50 $12 $13 Raw material usage (kg) per unit 3 Direct labour hours per unit 0-1 0-15 0.2 Machine hours per unit 0.5 0-7 0.9 Number of production runs per annum 16 12 8 Number of purchase orders per annum 24 28 42 Number of deliveries to retailers per annum 48 30 62 The price for raw materials remained constant throughout the year at $1.20 per kg. Similarly, the direct labour cost for the whole workforce was $14.80 per hour. The annual overhead costs were as follows: Machine set up costs 26,550 Machine running costs 66,400 Procurement costs 48,000 Delivery costs 54,320 Required: (a) Calculate the full cost per unit for products A, B and C under traditional absorption costing, using direct labour hours as the basis for apportionment. (b) Calculate the full cost per unit of each product using activity based costing. (c) Using your calculation from (a) and (b) above, explain how activity based costing may help The Gadget Co improve the profitability of each product. 10 . C L ENG 20.50 2 Aurinkoista FI 05/05/2022