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April 14, 2020 at 8:06 pm
A company is changing its costing system from traditional absorption costing based on labour hours to Activity Based Costing. It has overheads of $156,000 which are related to taking material deliveries.
The delivery information about each product is below. Total units required of product X;1,000 Y; 2,000 Z;3,000 Delivery size X; 200 Y; 400 Z;1,000
Total labour costs are $360,000 for 45,000 hours.
Each unit of each product takes the same number of direct hours. Assuming that the company uses the number of deliveries as its cost driver, what is the increase or decrease in unit costs for Z arising from the change from Absorption Costing to Activity Based Costing?
..A.. Decrease of $14 per unit ..B.. Increase of $14 per unit ..C.. Decrease of $30 per unit ..D.. Increase of $30 per unit
ANSWER FROM THE KIT
CORRECT ANSWER IS A
Absorption costing Since the time per unit is the same for each product, the overheads per unit will also be the same. $156,000 ÷ 6,000 units = $26
Activity based costing Number of deliveries for X (1,000/200)= 5 Number of deliveries for Y (2,000/400)= 5 Number of deliveries for Z (3,000/1,000) = 3 Total = 13 Cost per delivery = $156,000/13 = $12,000 Cost per unit of Z = ($12,000/3,000 units) × 3 deliveries = $12
Decrease = $26 – $12 = $14.
my question is about the absorption cost per unit.
here is my answer Absorption cost per unit= BA/BO = 156000÷45000 hours = $3.46 i used total hours as a base.
and here is how kit answered;
$156,000 ÷ 6,000 units = $26
i don’t understand why he took a total number of production as base to compute overhead adsorption rate.
i would like to tank to you in advance john.
April 28, 2020 at 10:23 pm
Dear As i Understand from The questing is that absorption base use by the company as previous the number of deliveries. as mention in question “It has overheads of $156,000 which are related to taking material deliveries.”
so the total of deliveries: X;1,000 Y; 2,000 Z;3,000 = 6,000
$156,000/6,000 = $26
hope i answer it right. 🙂
June 10, 2020 at 4:50 pm
Hi, If I am right.. explaining in detail total overhead cost = 156,000 total hours = 45,000 therefore, overhead absorption rate = 156,000/45000 =3.47
labour hour per unit of Z = 45,000/6000 = 7.5 (pls check the labour hours per unit in example 1 of the open tuition notes) (this question doesnt specify how the labour hours are divided btw the 3 products, but it specifies how labour hours are divided btw each unit of each product. i.e, each unit of x,y and z has the same labour hour per unit. total number of units = 1000 + 2000 + 3000)
finally, overhead per unit of Z = 3.47 x 7.5 = 26
To sum up, what we have done is (156,000 x 45,000) / (45,000 x 6000) which in simple format is 156,000/6000 = 26
April 11, 2020 at 3:22 pm
Hi sir, Can I use these lectures for September 2020 exams, if not when will the lectures be updated for September 2020 The books of bpp and kaplan available in the market are upto June 2020 Do you have any idea when the updated books for September 2020 will be available.
John Moffat says
April 11, 2020 at 4:00 pm
The lectures are valid for the September exams (the syllabus changes are minor and are already covered in the lectures).
I do not know when new Kaplan and BPP books will be available, but again the syllabus changes are minor.
April 11, 2020 at 4:22 pm
Thank you SO much for replying I had the same question.
March 17, 2020 at 9:01 pm
Hope you doing great, may I please have your PM revision kit and pocket note if it’s still available.
Please let me.
March 23, 2020 at 4:42 pm
Hi, please send me an email email@example.com and we can arrange.
March 15, 2020 at 2:21 pm
You will be better posting it in the forum for buying and selling accountancy books 🙂
February 4, 2020 at 7:18 pm
Hi sir i’m struggling to apply ABC its as though every question i come across it seems different please how do i get better at this ive brought a year membership with learn signal but their video is too short and doesnt cover enough of ABC
February 5, 2020 at 7:45 am
When you have problems with a question then ask in the Ask the Tutor Forum and I will help.
January 13, 2020 at 12:10 am
Hi sir , Can i use the BPP revision kit june 2019 for the March 2020 exam ?
November 19, 2019 at 1:52 pm
Assalam o alikum Sir, how are you? First of all thank you very much for such nice and clear lectures. Sorry i have not yet listen to these PM lectures but watched Management Accounting lectures and that was really great!. Sorry for this long message. i want to ask that if I don’t buy any study material and just read Opentuition notes, is it enough for me or i should buy any other study material?
November 19, 2019 at 3:31 pm
In future please ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture 🙂
If you watch my free lectures together with the lecture notes, then you do not really need a Study Text.
However it is vital that you buy a Revision Kit from one of the ACCA approved publishers. They are full of past exam and other exam-standard questions for practice, and practice is essential for passing the exam.
November 8, 2019 at 1:06 am
Can i use these lectures for March 2020 exams?
November 8, 2019 at 10:55 am
Yes, of course – they are up-to-date for the current syllabus and the syllabus will not be revived until September 2020 🙂
November 10, 2019 at 3:11 am
Thank you, sir.
November 10, 2019 at 10:23 am
You are welcome 🙂
September 15, 2019 at 6:20 am
Hi Your’s lectures is very helpful, Which study text , i should buy BPP or Kaplan..?
September 15, 2019 at 10:17 am
If you are watching all the lectures then you do not really need a Study Text, but if you do buy one then BPP and Kaplan are both ACCA approved publishers and both are good.(If you click on the link ono the right hand side of this page then you can get a 20% discount from BPP).
What is more important is that you buy a Revision Kit. That contains lots of past exam and other exam standard questions for practice, and practice is vital to passing the exam.
June 24, 2019 at 10:00 am
Thanks a lot……. GREATLY APPRECIATED.
June 24, 2019 at 4:10 pm
Thank you for you comment 🙂
June 22, 2019 at 6:38 pm
hi sir could u please provide script for your lectures
June 23, 2019 at 9:16 am
There is no script (but you can obviously download the free lecture notes that go with the lectures).
April 30, 2019 at 10:59 pm
Hello, John! It’s nice to meet you again since F3 =)
March 20, 2019 at 8:36 pm
I´m new on the site… and I have a question :do we have the material to read together with the video?
March 21, 2019 at 7:50 am
cinha: Yes – you can download the free lectures notes by going to the main PM page (the link is at the top of this page) and then filling the link on that page.
March 14, 2019 at 5:39 pm
yousufkarai: Yes, of course – we always ensure that our lectures are up-to-date for the upcoming exams. There are some syllabus additions from September onwards, but these are not substantial. All the current lectures are applicable for June, September and December exams, but some additional lectures will be added later for the September and December exams.
March 14, 2019 at 9:56 am
Hi sir , Are these lectures applicable for the upcoming June and December testing windows?
March 3, 2019 at 12:01 pm
Hello there. Are these lectures applicable for the coming June exam? Thanks
January 27, 2019 at 11:45 pm
Thank you John for the lectures.
Could you please set the Course Notes on background. That would be very helpful.
Thank you very much!
January 14, 2019 at 3:31 am
Thank you John! Today I have passed this exam. It is all because of your effective way of conveying knowledge, which truly reflects your sincerity with teaching profession. Thank you once again, stay blessed!
Best regards Ahsan from Pakistan
January 14, 2019 at 6:22 am
Many congratulations, and thank you for your comment 🙂
April 2, 2019 at 7:59 am
Congratz May I ask you how did you study for the exam?
October 15, 2018 at 2:38 am
Hii Sir, I am really really grateful to you …..you are such an inspiration and awesome teacher who has made my concepts clear i today passed my F5 with 60 marks … thankyou so much sir ! I owe them to you since i based my whole studies on your lectures and prepared the exam in 14 days.
October 15, 2018 at 4:56 am
Thank you for your comment, and many congratulations on passing 🙂
September 26, 2018 at 1:29 pm
Thanks John. Are you trying to say that traditional absorption costing absorb overheads in an arbitrary way thereby producing inaccurate product cost and distorted profit figures?
September 27, 2018 at 8:45 am
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