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ACCA F5 Activity Based Costing – Lecture 2 Example 1b

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    • Not true.

      78040/20000 = 3.90 (not 8.90) and this is the overhead cost per unit, not a loss.

      There is a profit of 1.10 per unit. Watch the lecture again or check the printed answer at the end of our free lecture notes.

  2. Good day Sir.
    I have a question why are we treating Machining cost differently from the rest of the cost pools? Why are we firstly calculating total machine hours for each product rather than just adding up all machine hour per unit of each product?

    • We are not treating it differently.

      We find the total of each activity – the total of all the set-ups; the total of all the machine hours, etc.. Do watch the lecture again because I do explain this and stress how important it is to watch out for it.

  4. hi one question…in example 1 above calculating using abc, the receiving overhead is calculated as 30000/22 = 1363.636 in the above answer it was rounded off to 1364 per delivery..this makes the total amount of abc (a=13640 b=13640 c=2728) when calculated to be 30008.. This kind of throws me off…Is it ok to apportion it as 10/22 x 30000 to get a more precise figure or should it be done as shown? thank you…

    • But as I explain in the lecture, when you later calculate the overheads per unit (which is the ultimate aim), then the rounding makes no difference at all because we calculated the cost per unit to the nearest cent.

      • awwwww i must have missed that as I was trying to complete the question on my own the second time around….it just seemed easier to do it the other way as i dont want to get confused along the way when doing other questions..after alla one cent does make a difference in accounting ..lol…il go over that lecture again..thanks much…

  7. Sir, what does machining means ? Like I understand the terms like set up cost … receivables… Despatch. But what does machining means? Why it’s coming under the category of overhead?

  10. Hello Mr. Moffat,

    One question, if I may, regarding possible cost drivers. I am trying to solve a problem which mentions : “Distribution costs (all indirect) amount to X$ and are assigned to products by means of the production cost.” Can the production cost be used as a cost driver for the allocation of the distribution costs? I, for instance, considered as cost driver, for this particular allocation, the production – the level of activity for each product. Please let me know your thoughts regarding this.

    Thank you in advance,

    Adina

    • If a question says that the production cost is to be used, then you must use the production cost.

      If you are asking whether it is sensible in ‘real-life’, then it depends. There are no rules and it is whatever management feel is the most sensible. The reason cost might be regarded as better than units, is that some products may be bigger than others and therefore cost more to deliver. It is likely that bigger units cost more to produce.

  11. Sir,

    Regarding machining costs:
    Labour hours for B should be 1 hour times 25, 000 units = 25,000 hours and total (A+B+C) 67,000 instead of 94,000. Indeed in your previous lecture the overhead unit cost was $ 2.84/hour, Coming from $190,000/64,000 hours. Am I correct?
    Thanks

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