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XYZ (Pty) Ltd is a company making three products namely, product A, B and C. XYZ (Pty) Ltd has been incurring large losses on products

XYZ (Pty) Ltd is a company making three products namely, product A, B and C. XYZ (Pty) Ltd has been incurring large losses on products B and C compared to product A. The losses have been a concern to each product’s line management since their performance bonus is based on the Return on Assets (ROA). All three product have similar prime costs. However, while going through their financial records, using the traditional method of allocating manufacturing overheads where manufacturing machine hours are used as the cost driver, you discovered that fixed costs are much higher for product B and C compared to product A.

You are provided with the following information regarding the three products:


Product AProduct BProduct C
Annual production (units)65 000102 00080 000
Batch size (units)2025100
Number of machine set-ups per batch724
Number of inspections per batch6210
Machine hours per unit15min15min25min





Manufacturing overheadsR340 000


% of annual machine set-ups costs to total overheads40%


% of annual inspection costs to total manufacturing
overheads
60%


Using the Activity Based Costing (ABC) principle of allocating overheads, calculate the total manufacturing cost allocated to each product produced by XYZ (Pty) Ltd.

Calculate the manufacturing overheads allocated to each product using the Traditional method of allocating overheads.

Round all your answer to nearest two decimals.

Overhead allocation to each each activity:

Machine set-upRAnswer
InspectionRAnswer



Product AProduct BProduct C
Activity Based Costing


Machine set-up costsRAnswerRAnswerRAnswer
Inspection costsRAnswerRAnswerRAnswer
Total Manufacturing costsRAnswerRAnswerRAnswer

Traditional method



Total number of machine hoursAnswer hrsAnswer hrsAnswer hrs
Indirect cost using traditional methodRAnswerRAnswerRAnswer

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