Comments

  1. avatar says

    I’m really gratefull for all the work you did to provide us the lecture. And always wonder don’t you have some impolites from the side of ACCA that you give us the knowledge for free?

    Many many thanks!

  2. avatar says

    i want to ask why did we multiply machine hrs with number of outputs/units while calculating machine hrs in absorption costing and why did we not multiply machine hrs with lab our rate per hr that is 5 while calculating machine hrs under abc costing?

    • Profile photo of John Moffat says

      It is because in order to apportion the overhead between the products we need to know how many machine hours are worked for each product.

      The hours on machines will not necessarily be the same as the labour hours (and they are certainly not the same in this question).

  3. avatar says

    Hello Sir,
    I have a question.

    Example of a question:
    Briefly explain the implementation problems often experienced when ABC is first introduced. (4marks)

    The question says briefly explain. What will happen if I answer very brief for example

    – Lack of understanding by manager
    – Difficult to identify cost driver

    etc…

    Can I still gain marks without further explanation for every answer?

    Thanks.

  4. avatar says

    First of all, thank you for providing such a great learning ressource to study the ACCA!

    Quick query:

    We’ve figured out the machine cost per hour at 0.585. In terms of the overheads, why are we not multiplying this by 2 to get a cost of 1.17 per unit (since it takes 2 hours to make a unit), and using 1.17 in our overheads cost card?

  5. avatar says

    Hi i want to know what will be the cost drivers for : Procurement cost, Machine running cost and Machine set up cost??

    if cost drivers given are : No.of production runs, No.of purchase orders and No. of deliveries

    as far as i know No.of runs will be for machine running cost but what about procurement cost and machine setup cost. What are these two related to? :(

  6. avatar says

    Your teaching is fantastic,pls am not clear on the ABC on machine hour. What criterial is used in getting 2 each used for the cost driver instead of the 2,12 and 2 that was given as the
    machine hr/u’

  7. avatar says

    Hi John,
    As ever, great lecture.

    Quick question: in both cases 190k were absorbed, but the costs are wildly different.
    If I add up the overheads per unit, example a) gives me 20.68+17.84+17.84 = $56.36, and example b) gives me 18.90+18.79+23.63 = $61.32.
    That then also means that the profits don’t balance. I would expect the profits per unit to be different, but that when added up they’d be the same. After all, we’ve spent the same amount, and we’ve charged the same amount (in this case there hasn’t been any over/under absorption to confuse matters).

    Thank you
    Andreas

      • avatar says

        @johnmoffat, Thanks John.
        I had done that to confirm that it comes back to 190k, but still can’t work out why it then is different per unit.
        It’s still the same value of direct cost, and the same value of overheads spread over the same number of units. What’s causing the difference?

        Surely if you’re after bigger profits you’d then just use the first approach.
        Or is it because of rounding errors along the way that the differences are more accentuated at the individual unit level than at the total inventory level?

        Thank you

      • Profile photo of John Moffat says

        @andreasmacfarlane, A few things…..

        Firstly, there is no logic in adding the unit costs together. Suppose apples cost $2 each and oranges cost $3 each. The total is $5 for one of each, but that means nothing to anyone – if you buy 100 apples and 1 orange, then $5 is completely irrelevant :)

        Secondly, we can charge the overheads between the products in any way we want – for example, we could simply divide the total overheads by the total number of units produced – there is no ‘law’. What makes ABC such a good idea is that we are trying to charge them according to how much of each overhead each product is using.

        Thirdly, the total profit of the business will be the same however we charge the overheads. The total overhead cost in the income statement will be 190,000 whatever happens and so the profit will not be affected. The reason we want to charge the overheads to products in a ‘fair’ way is because if we know how much it costs to make one unit we can then decide how much to charge. If one product costs a lot to make then we obviously want to charge a high price. (And of course changing the selling price will effect the profit)

  8. Profile photo of kakarobby22 says

    kindly help please, i am unable to fully load the video and then disconnect to Internet and view the entire lecture.there’s no telephone line installation and so i used a usb emtel internet key….please help thank you

Leave a Reply