You need to buy a Revision Kit from one of the ACCA approved publishers (BPP and Kaplan). They are full of past exam and other exam standard questions in the same format as those in the real exam.
Yes.Thank you for your advise.I wonder that whether there is some of OT question in the real exam be same as those in revision kit or same as past exam ?
Greetings sir. I think you made a mistake In q3. The answer should have been $39.30. Owing to the fact that you took 96, 000 units of Q instead of 9, 600 units in calculating the total other Overheads of Q. If you had used the right units which are 9, 600 units, the answer would have been. $39.30. I hope you review an given me feedback. Thanks in advance
What is it that you need more help in understanding? Have you watched my free lectures? If anything is not clear to you in the lectures then ask in the Ask the Tutor Forum.
Sir can you please explain why in question 3 we have taken no of production run in calculating set up cost instead of taking total production. The overhead itself tells that its the total production setup cost.
Set-up costs are the costs of setting the machines every time there is a production run . It doesn’t make any difference how many units they produce in the production run- they only need to set up the machines for each production run.
Did you watch my free lectures on ABC before attempting the test?
IN Q3. I WAS trying to doing no. Of Productions Runs required For product P (2400*13) PRODUCT Q(9600*15) WHY NOT THIS. NO.OF INSPECTIONS FOR product P (13*5) PRODUCT Q (15*3) TOTAL LABOUR HOURS WERE RIGHT
Great (but do make sure you have a Revision Kit from one of the ACCA approved publisher. They are full of questions and answers, and question practice is vital to passing the exam).
Have you not watched the free lecture on ABC, because I explain this in the lecture?
The biggest benefit of ABC is that because it makes us focus on what is causing the overheads to occur, we can look for ways of operating more efficiently and thus save costs.
Wow. I got all correct in my first attempt. Thanks John for your amazing contribution towards our future. Without your lectures, I won’t be able to clear out my exams. I will consider to donate some pounds to you guys.
However, do make sure that you buy a Revision Kit from one of the ACCA approved publishers, because they have lots of past exam and other exam standard questions for practice. It is important to practice lots of questions – just our pick tests is not enough 🙂
Hello sir. Thanks for your advice. I have already ordered a BPP revision kit and study text. I know study text is not a must, but it is quite helpful when I got confused about a chapter.
I did not read the question 3 well. It asked to calculate cost per unit for product Q. But I calculated cost per unit of product P thinking that was asked on the question. Next time I will be more careful for sure. Anyway, thanks to John for putting these questions. You are a rare kind of human being. God bless you John.
Hello,other overheads basing on the question,consider labour hours,but the labour hours are per unit..if its per unit..calculate the total by labour hours*units..thats (8*2400)+(10*9600)=115200…
I got 60% marks in this quiz. No.2 and no.5 are wrong because I don’t know about traditional method and no.5 is wrong because i didn’t understand the options no.2 and 3. Kindly please tell me. Thankyou
The statement is saying that using ABC means that it results in having a good understanding of why overheads are occurring. This is true – as I explain in my lectures, it makes the company find out what is causing the overheads (the cost driver).
Can you please explain statement 1 of question 2 ? I thought the opposite was true. Does traditional absorption costing technique allocate OH proportionally?
If you watch the example that I work through in my lecture, you will see that low volume products tend to have more costs than high volume products. ABC does allocate more or the overheads to low-volume products, but traditional absorption costing allocates the same unit cost to all of the products regardless of the volume of each.
I must say i made the same mistake, i have answered this question as statement 2 only being correct. I think it may be the wording that has tripped me up, but below was my thought process:
If you have £100,000 overheads and 2 products of say 800 and 200. Traditional would just split it 50/50, so £50,000 to each? Would this not therefore over-allocate overheads to the low volume and under-allocate to the high volume? If you have under-allocated surely you haven’t allocated enough, but in fact you have allocated too much?
Just wanted to thank you for the lectures and the test for chapter 1. I’m a returning student within ACCA and this has jump started my studies immensely. Looking forward to continue with the lecture notes and the revision kit afterwards. Out of curiosity, is there something I should look out for when presenting the results in the computer based exam setup? I have structured and linked my workings accordingly and making sure that they can be followed through easily however (since i’m not much of an imaginative person) it can become very long (especially in the workings section so you would go back and forth within the same sheet). What i did is that i set up the first columns in the spreadsheet with the answer and a second set of columns with the workings one following the other and referencing every line with the correct working section. Is there something else that the examiner would require out of me to make it easier for them to follow through and understand better my reasoning?
In future please ask this kind of question in the Ask the Tutor Forum – not as a comment on a lecture or practice test.
For sections A and B, your workings are not marked – only the answer – so it doesn’t matter how you do them. For Section C, it is the workings that are important and you get marks even if you make a mistake somewhere. How you show the workings does not matter, but time is an issue so you do not want to spend too long. Where possible set up formulae within the spreadsheet cells – the marker will be able to check what you have done. Best is to try the specimen exams on the ACCA website.
this is brilliant, love the lectures and the quiz but would this be enough to pass the exams with ofcourse revision kit and would i be easily to able to do activity based costing questions in the exam kit after taking the lecture and reading open tution notes?
Provided that you do work through all of the questions in your Revision Kit, then the lectures (together with our free lecture notes) are certainly enough to be able to pass the exam well.
Thanks for the lecture and the quiz! I can see that some of the comments are a couple of years old which suggests that the quiz also is. I take it the material is still as relevant as then?
Thank you Mr. John, this really jump-started my reading & understanding ABC. Though I could not easily & timely get the answers but was glad my reasoning returned & I was getting a bit confident. God bless u IJN
In question 5, how can the second choice can be an advantage of ABC? Do ABC costing reduce the total overhead cost? I think it only allocates OH costs in more sensible ways than the traditional absorbtion costing.
Using ABC forces the company to find out what is causing each of the overheads, and can therefore look for ways of operating more efficiently and therefore reduce overheads.
I do explain this (with an example) in my free lectures on ABC.
(But make sure that you do buy a Revision Kit from one of the ACCA approved publishers – you need to practice as many questions as possible, and the Revision Kits contain lots of exam-standard questions.)
I don’t know which of the questions you are referring to. I assume that you watched my free lectures on the absorption of overheads before attempting the test?
Why is that in question 3 when we are suppose to say 230400/ (96000+19200)=2 then 2*19200=38400 coz we dealing Q but in the answer you have done the opposite…details for product P where used on the other overheads item….
With regards question 2 why is it that traditional absorption costing systems tend to over cost high volume products and under cost low volume products? I know the opposite applies to ABC because overhead costs are now are larger proportion of overall or total cost in modern manufacturing and as a result the proportion of indirect costs is much higher than direct costs.
In regards to question 3 I understand how the answer came about but I was wondering how did you get the 115,200 in regards to working out other overheads
Suppose we make 100 units of A and 1,000 units of B.
Using absorption costing (it is on a per unit bases) would absorb the same amount per unit. Therefore in total B would be given 10 times as much overheads as A.
However, it could be that the overheads all related to setting up the machines for production and that they only need to set up the machines once for each product (regardless of how many they produce). Therefore using ABC an equal amount of overheads (in total) should be given to each product.
As a result using absorption costing is giving much lower overheads in total than if we used ABC.
(Again, this is only a very simple example to try and illustrate the point, and it will not necessarily always be the case, but for that sort of reason absorption will tend to end up giving lower overheads to low volume products than ABC.)
I didn’t get the general overheads part . I calculated the overhead absorption rate by the formulae TOTAL BUDGETED OH COST DIVIDE IT BY TOTAL BUDGETED LAB/MACHINE HOURS . 230400/115200 . I didn’t get the rest of the part . how and y did u multiply it with 96000 :/
It would help if you said the number of the question you are referring to!!
The absorption rate for ‘other overheads’ is 230,400/115,200, based on labour hours because the question said to use labour hours. (Machine hours are nothing to do with it).
The total labour hours used for product Q are 96,000 and therefore the total overhead for product Q is 96,000 x 230,400/115,200.
I do suggest that you watch the free lecture on absorption costing before attempting the test.
The questions says that the budgeted production units for Product Q is 9600; it then says that the Labour hours per unit for Product Q are 10. Therefore in order to make the budgeted 9600 units you would need to multiply (9600 x 10) = 96000. This gives the total labour hours that would be required to meet the budgeted production. Therefore when you are calculating the “Cost Per Other Overheads” you would then take (96000x$2.00 per unit) = $192,000
This is what I understood from working it out based on the example I had previously done in the lecture. Hope this helps.
The fact that for some overheads it might be impossible to identify a cost driver (and therefore be unable to apply ABC to those overheads) is not going to be an advantage of using ABC.
Forcing us to understand what drives an overheads is an advantage (because we can then try and use it more efficiently); the fact it deals with all overheads is an advantage; the fact that is can lead to a reduction in overheads is an advantage (because of using whatever is causing the overheads more efficiently)
In my so far understanding, total overhead doesn’t change, just allocation amount will change in accordance with the identified cost driver? And now we just find different ways to distribute incurred cost to activities more reasonably.
The main benefit of using ABC is that identifying what causes overheads can lead to using resources more efficiently and therefore lead to a reduction in the total overheads in the future. I do suggest that you watch our free lecture on ABC where this is explained.
WHAT DOES THIS LINE MEAn=the Choice of Both activities and cost drivers might be inappropriate???? Benefit obtained from ABC might Not justifiy the cost????
A company manufactures two products, P and Q for this the following information is available:-
Budgeted production: P (2,400 units) Q (9,600 units) Labour hours per unit: P (8) Q (10) # of production runs required: P (13) Q (15) # of inspections during production;: P (5) Q (3)
Total production set-up costs $336,000 Total inspection costs $192,000 Total overhead costs $230,400
Other overhead costs are absorbed on the basis of labour hours.
I have done the following
Production set up $336K/28 ie the # of production runs then I multiply by 15 = 180K Inspections $192K/8 ie total # of inspections the multiply by 3 = 72K General overhead $230,400K/18 Labour hours by *10 = 96K
A company manufactures two products, P and Q for this the following information is available:-
Budgeted production: P (2,400 units) Q (9,600 units) Labour hours per unit: P (8) Q (10) # of production runs required: P (13) Q (15) # of inspections during production;: P (5) Q (3)
Total production set-up costs $336,000 Total inspection costs $192,000 Total overhead costs $230,400
Other overhead costs are absorbed on the basis of labour hours.
I have done the following
Production set up $336K/28 ie the # of production runs then I multiply by 15 = 180K Inspections $192K/8 ie total # of inspections the multiply by 3 = 72K General overhead $230,400K/18 Labour hours by *10 = 96K
A company manufactures two products, P and Q for this the following information is available:-
Budgeted production: P (2,400 units) Q (9,600 units) Labour hours per unit: P (8) Q (10) # of production runs required: P (13) Q (15) # of inspections during production;: P (5) Q (3)
Total production set-up costs $336,000 Total inspection costs $192,000 Total overhead costs $230,400
Other overhead costs are absorbed on the basis of labour hours.
The way I calculate it is: i multiply the budgeted production units of the 2 productsnd total them up together becoming 115,200 with its respective labour hours per unit and total them up together becoming 115,200. then divided it with the total overhead costs and got $2. I do not know where have I gone wrong.
That bit of the answer is correct. However, two problems: One is that set-up costs and inspection costs are also overheads. Second is that the question wants to know the overhead cost per unit of Product Q.
and Sir, traditional costing tends to OVER or UNDER allocate costs to low-volume product? Coz here, the correct answer mentioned are both statements true but the answer at the back of your F5 lecture course notes is written as only statement 2 is true. Which is which?
Here is a very simple illustration. Suppose a business produces 100 units of product A and 1000 units of product B. The total overheads are $1,100. Tradition costing will absorb the overheads at $1 per unit. So a total of $100 for product A and a total of $1,000 for product B.
Suppose now that the overheads of $1100 are set-up costs, and each product needs 1 set-up regardless of how many are produced (so 2 set-ups in total). Since the cost per set-up is $550, the total overheads should (under ABC) be $550 for A and $550 for B.
The problem does not always exist, but traditional absorption does tend to under allocate costs to low volume products as I have illustrated above.
P Hours 19200 and Q 96000 Runs 13 @ 185units per run and Q 15 runs at 640units per run Inspections 5 and 3 respectively, with Q (3 inspections per run, each run 640 units)
So Runs are 12000 each (336k/28), divide by 640 to get a per unit value = 18.75 Inspections (192k/8) = 24000. Q has 3. 24000*3 / 9600units = 7.50 Labour/other hrs (230400/115200 total hours) = 2 per hour. Q needs 8 hours, therefore 16.00 per unit.
P Hours 19200 and Q 96000 Runs 13 @ 185units per run and Q 15 runs at 640units per run Inspections 5 and 3 respectively, with Q (3 inspections per run, each run 640 units)
So Runs are 12000 each (336k/28), divide by 640 to get a per unit value = 18.75 Inspections (192k/8) = 24000. Q has 3. 24000*3 / 9600units = 7.50 Labour/other hrs (230400/115200 total hours) = 2 per hour. Q needs 8 hours, therefore 16.00 per unit.
Yes please add the answer working, its easier and quicker to follow up that way. upon submission if the answer is incorrect the correct working should also pop up..even in an event that the answer is right the working should still show for the sake of comparison
We provide this website free of charge and the current software does not allow the workings to appear. When we can afford it we will upgrade but until then you should ask here if you have a problem.
We provide this website free of charge and the current software does not allow the workings to appear. When we can afford it we will upgrade but until then you should ask here if you have a problem.
(I assume, of course, that you have watched the relevant lectures on this website.)
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Dear Sir,
Could you please build bank of OT questions in order that I can pratice more ? At present, the same question appears each time I pratice.
Thank you.
Sorry but no.
You need to buy a Revision Kit from one of the ACCA approved publishers (BPP and Kaplan). They are full of past exam and other exam standard questions in the same format as those in the real exam.
Yes.Thank you for your advise.I wonder that whether there is some of OT question in the real exam be same as those in revision kit or same as past exam ?
I don’t understand what you mean. Some of the questions in the real exam are similar to those in our tests.
Greetings sir. I think you made a mistake In q3. The answer should have been $39.30. Owing to the fact that you took 96, 000 units of Q instead of 9, 600 units in calculating the total other Overheads of Q. If you had used the right units which are 9, 600 units, the answer would have been. $39.30. I hope you review an given me feedback. Thanks in advance
There is no mistake. Other overheads are absorbed on the basis of labour hours and each unit of Q takes 10 hours. 9,600 units a 10 = 96,000 hours.
Hi John
Thank you for the quiz. I can’t figure out where we got the $115200 on overheads. Please assist.thank you
Hi John
I found it, thanks
I am pleased that you found it 🙂
Thanks so much. This is extremely helpful.
Thank you for your comment 🙂
hi i need more help in understanding this, can anyone help me please, i am not good in accounting but i am learning.
What is it that you need more help in understanding? Have you watched my free lectures? If anything is not clear to you in the lectures then ask in the Ask the Tutor Forum.
Thank you.. this is really helpful.
Thank you for your comment 🙂
I’ve watched the lectures but i couldn’t answer Q 1
Have you checked the answer and understand it now?
where is the answer ?
The answers appear if you submit your answers and then ‘review’ the quiz.
Sir can you please explain why in question 3 we have taken no of production run in calculating set up cost instead of taking total production. The overhead itself tells that its the total production setup cost.
Set-up costs are the costs of setting the machines every time there is a production run . It doesn’t make any difference how many units they produce in the production run- they only need to set up the machines for each production run.
Did you watch my free lectures on ABC before attempting the test?
Yes sir i did watched all the lectures.
Great 🙂 I hope you are now clear about the set-up costs.
IN Q3. I WAS trying to doing no. Of Productions Runs required For product P (2400*13) PRODUCT Q(9600*15) WHY NOT THIS.
NO.OF INSPECTIONS FOR product P (13*5) PRODUCT Q (15*3)
TOTAL LABOUR HOURS WERE RIGHT
got 100%.
amazing tutorials.
Thank you for your comment, and well done 🙂
thanks sir ,it help a lot
regarding question 4, how come the cost of abc is greater than the benefits. in your lecture, there are 4 adv and only 2 disadv?
Counting the advantages and disadvantages means nothing at all.
The statement says the costs (i.e. in $’s) may be bigger than the benefits (i.e. the savings in $’s).
It does not say that they will be bigger — hopefully they will be lower. But they may (might) be bigger.
I make this very clear in my lecture.
Greetings sir
Sir i did Unterstand only this line That Cost may be bigger than the Benefits.
But i did. Not understand the SECOND LINE?
Might be bigger means that maybe they will be bigger but maybe they will not be bigger.
Sorry By mistake ….i wanted to say thank you
Hello,
Could someone explain me how in the 3rd question did we obtain the ‘115,200’ figure and what does it represent?
Thanks
It is the total number of labour hours ( (2400 x 8) + (9600 x 10) )
Did you watch the free lectures before attempting the test?
I got 100% Thank your for Free Lectures
got 100%.
amazing tutorials.
80percent
Great (but do make sure you have a Revision Kit from one of the ACCA approved publisher. They are full of questions and answers, and question practice is vital to passing the exam).
I got 100%!!!!
Thank you so much for your excellent tutorial.
Thank you for your comment 🙂
Hello, I just want to know how can ABC analysis help to reduce the “TOTAL” Overhead cost?
Have you not watched the free lecture on ABC, because I explain this in the lecture?
The biggest benefit of ABC is that because it makes us focus on what is causing the overheads to occur, we can look for ways of operating more efficiently and thus save costs.
I give examples of this in the lectures.
Amazing… I scored 100%. Thank U!
Well done 🙂
Wow. I got all correct in my first attempt. Thanks John for your amazing contribution towards our future. Without your lectures, I won’t be able to clear out my exams. I will consider to donate some pounds to you guys.
Thank you for your comment 🙂
However, do make sure that you buy a Revision Kit from one of the ACCA approved publishers, because they have lots of past exam and other exam standard questions for practice. It is important to practice lots of questions – just our pick tests is not enough 🙂
Hello sir. Thanks for your advice. I have already ordered a BPP revision kit and study text. I know study text is not a must, but it is quite helpful when I got confused about a chapter.
You are welcome 🙂
I did not read the question 3 well. It asked to calculate cost per unit for product Q. But I calculated cost per unit of product P thinking that was asked on the question. Next time I will be more careful for sure. Anyway, thanks to John for putting these questions. You are a rare kind of human being. God bless you John.
Thank you for your comment 🙂
In purpose of self-correction, How can I access the correct answers?
please explain me number 5 . i feel the choose is wrong
Good day Sir,
I trust you are well.
How do I calculate the 115200 in question 3?
Other overheads: 96000 x 230 400 / 115200 = 192 000
Regards
Hello,other overheads basing on the question,consider labour hours,but the labour hours are per unit..if its per unit..calculate the total by labour hours*units..thats (8*2400)+(10*9600)=115200…
Thank you
Thank you for the Lecture, Note and Quiz. i can boldly say i understand the topic better. i was able to score 80%.
Thank you for the Lecture, Note and the Quiz. i can boldly say i understand the chapter better. i was able to score 80%.
thank you for the notes, the lecture and the quiz I now understand the topic better coz I was able to score 100%
I didn’t get the question 5 option 3. Please tell me.
Thankyou in advance??
I got 60% marks in this quiz. No.2 and no.5 are wrong because I don’t know about traditional method and no.5 is wrong because i didn’t understand the options no.2 and 3. Kindly please tell me.
Thankyou
Did you watch the free lectures before attempting the test?
Have you read my replies below regarding questions 2 and 5?
Hey can you please explain the statement no.3 of question 5. I am little confused here
The statement is saying that using ABC means that it results in having a good understanding of why overheads are occurring.
This is true – as I explain in my lectures, it makes the company find out what is causing the overheads (the cost driver).
Can you please explain statement 1 of question 2 ? I thought the opposite was true. Does traditional absorption costing technique allocate OH proportionally?
If you watch the example that I work through in my lecture, you will see that low volume products tend to have more costs than high volume products. ABC does allocate more or the overheads to low-volume products, but traditional absorption costing allocates the same unit cost to all of the products regardless of the volume of each.
Hi John,
I must say i made the same mistake, i have answered this question as statement 2 only being correct. I think it may be the wording that has tripped me up, but below was my thought process:
If you have £100,000 overheads and 2 products of say 800 and 200. Traditional would just split it 50/50, so £50,000 to each? Would this not therefore over-allocate overheads to the low volume and under-allocate to the high volume?
If you have under-allocated surely you haven’t allocated enough, but in fact you have allocated too much?
Hi Sir,
Just wanted to thank you for the lectures and the test for chapter 1. I’m a returning student within ACCA and this has jump started my studies immensely. Looking forward to continue with the lecture notes and the revision kit afterwards. Out of curiosity, is there something I should look out for when presenting the results in the computer based exam setup? I have structured and linked my workings accordingly and making sure that they can be followed through easily however (since i’m not much of an imaginative person) it can become very long (especially in the workings section so you would go back and forth within the same sheet). What i did is that i set up the first columns in the spreadsheet with the answer and a second set of columns with the workings one following the other and referencing every line with the correct working section. Is there something else that the examiner would require out of me to make it easier for them to follow through and understand better my reasoning?
Thanks in advance for your help and guidance 🙂
In future please ask this kind of question in the Ask the Tutor Forum – not as a comment on a lecture or practice test.
For sections A and B, your workings are not marked – only the answer – so it doesn’t matter how you do them.
For Section C, it is the workings that are important and you get marks even if you make a mistake somewhere. How you show the workings does not matter, but time is an issue so you do not want to spend too long. Where possible set up formulae within the spreadsheet cells – the marker will be able to check what you have done. Best is to try the specimen exams on the ACCA website.
Am so grateful for helping me understand more of ABC..hoping for the best too in the rest of other chapters.God bless you tutor
Thanks for this quiz. Very helpful
Thanks very helpful
You are welcome 🙂
ok
Hello, please solve the problem solving method number 3
sir how do we measure the costs associated with ABC
You will be told the costs in the question.
(Please ask this sort of question in the Ask the Tutor Forum, and not a a comment on a test.)
Thank you so much really appreciate it
You are welcome 🙂
Hello, please solve the problem solving method number 3
so like in question 1 we need to use the total no of set ups for X and Y cause they both cause the total set up costs
Yes – that is true. And you can calculate the number of set-ups because you know the size of each batch.
Did you watch my free lectures on this before attempting the test?
yes i did sir thank you
yes i did sir thank you for answering me
You are welcome 🙂
You are welcome 🙂
this is brilliant, love the lectures and the quiz but would this be enough to pass the exams with ofcourse revision kit and would i be easily to able to do activity based costing questions in the exam kit after taking the lecture and reading open tution notes?
Provided that you do work through all of the questions in your Revision Kit, then the lectures (together with our free lecture notes) are certainly enough to be able to pass the exam well.
Thanks for the lecture and the quiz! I can see that some of the comments are a couple of years old which suggests that the quiz also is. I take it the material is still as relevant as then?
All our lectures are relevant to the current syllabus, and have been updated where necessary.
Excellent, thank you for confirming. I thought they were relevant as I used the lectures for F4 for March ’18 exams and they were very helpful.
Thank you Mr. John, this really jump-started my reading & understanding ABC. Though I could not easily & timely get the answers but was glad my reasoning returned & I was getting a bit confident. God bless u IJN
Thank you for the comment 🙂
Mr John, thanks kindly for the test very helpful
You are welcome 🙂
In question 5, how can the second choice can be an advantage of ABC? Do ABC costing reduce the total overhead cost? I think it only allocates OH costs in more sensible ways than the traditional absorbtion costing.
It is the most important advantage of ABC !!
Using ABC forces the company to find out what is causing each of the overheads, and can therefore look for ways of operating more efficiently and therefore reduce overheads.
I do explain this (with an example) in my free lectures on ABC.
Thanks!! I am just thinking it from allocation point of view rather than a technique, that is why I missed the concept.
You are welcome 🙂
it was great
Good 🙂
How useful it is!
🙂
The test is great, thank you its helpful as a practice to all F5 student
The test is great, thank you its really helpful
You are welcome 🙂
(But make sure that you do buy a Revision Kit from one of the ACCA approved publishers – you need to practice as many questions as possible, and the Revision Kits contain lots of exam-standard questions.)
please i didnt understand how to calculate for the overhead costs absorbrsd on the basis of labour hours
I don’t know which of the questions you are referring to. I assume that you watched my free lectures on the absorption of overheads before attempting the test?
Thank you the quiz it was really helpful
Great 🙂
Thanks for the quiz. Very helpful
You are welcome 🙂
Why is that in question 3 when we are suppose to say 230400/ (96000+19200)=2 then 2*19200=38400 coz we dealing Q but in the answer you have done the opposite…details for product P where used on the other overheads item….
The answer is correct. There are 9,600 Q’s and each takes 10 hours, which is 96,000 hours in total.
Where else could we try more of such questions ?
You must buy a Revision Kit from one of the ACCA approved publishers, as we recommend throughout this website.
With regards question 2 why is it that traditional absorption costing systems tend to over cost high volume products and under cost low volume products? I know the opposite applies to ABC because overhead costs are now are larger proportion of overall or total cost in modern manufacturing and as a result the proportion of indirect costs is much higher than direct costs.
I can see my comment has already been answered below. Thanks
I am glad you found the answer 🙂
Dear John,
where is the answer for the above inquire regards question 2?
It is below.
In regards to question 3 I understand how the answer came about but I was wondering how did you get the 115,200 in regards to working out other overheads
The total labour hours are (2,400 x 8) + (9,600 x 10) = 115,200
I do suggest that you watch our free lecture on ABC!
thank you
You are welcome 🙂
hi,
i would appreciate if you explain how absorption costing under allocates costs to low volume products??
Here is a very simple example to explain:
Suppose we make 100 units of A and 1,000 units of B.
Using absorption costing (it is on a per unit bases) would absorb the same amount per unit. Therefore in total B would be given 10 times as much overheads as A.
However, it could be that the overheads all related to setting up the machines for production and that they only need to set up the machines once for each product (regardless of how many they produce). Therefore using ABC an equal amount of overheads (in total) should be given to each product.
As a result using absorption costing is giving much lower overheads in total than if we used ABC.
(Again, this is only a very simple example to try and illustrate the point, and it will not necessarily always be the case, but for that sort of reason absorption will tend to end up giving lower overheads to low volume products than ABC.)
I didn’t get the general overheads part . I calculated the overhead absorption rate by the formulae TOTAL BUDGETED OH COST DIVIDE IT BY TOTAL BUDGETED LAB/MACHINE HOURS . 230400/115200 . I didn’t get the rest of the part . how and y did u multiply it with 96000 :/
It would help if you said the number of the question you are referring to!!
The absorption rate for ‘other overheads’ is 230,400/115,200, based on labour hours because the question said to use labour hours. (Machine hours are nothing to do with it).
The total labour hours used for product Q are 96,000 and therefore the total overhead for product Q is 96,000 x 230,400/115,200.
I do suggest that you watch the free lecture on absorption costing before attempting the test.
The questions says that the budgeted production units for Product Q is 9600; it then says that the Labour hours per unit for Product Q are 10. Therefore in order to make the budgeted 9600 units you would need to multiply (9600 x 10) = 96000. This gives the total labour hours that would be required to meet the budgeted production. Therefore when you are calculating the “Cost Per Other Overheads” you would then take (96000x$2.00 per unit) = $192,000
This is what I understood from working it out based on the example I had previously done in the lecture. Hope this helps.
Thank you for your great lecture and question!
Could you please help to explain the answer for the question about ‘NOT the advantage of the ABC base costing’?
The fact that for some overheads it might be impossible to identify a cost driver (and therefore be unable to apply ABC to those overheads) is not going to be an advantage of using ABC.
Forcing us to understand what drives an overheads is an advantage (because we can then try and use it more efficiently); the fact it deals with all overheads is an advantage; the fact that is can lead to a reduction in overheads is an advantage (because of using whatever is causing the overheads more efficiently)
In my so far understanding, total overhead doesn’t change, just allocation amount will change in accordance with the identified cost driver? And now we just find different ways to distribute incurred cost to activities more reasonably.
The main benefit of using ABC is that identifying what causes overheads can lead to using resources more efficiently and therefore lead to a reduction in the total overheads in the future.
I do suggest that you watch our free lecture on ABC where this is explained.
WHAT DOES THIS LINE MEAn=the Choice of Both activities and cost drivers might be inappropriate????
Benefit obtained from ABC might Not justifiy the cost????
Hi
I am looking at the MCQ
A company manufactures two products, P and Q for this the following information is available:-
Budgeted production: P (2,400 units) Q (9,600 units)
Labour hours per unit: P (8) Q (10)
# of production runs required: P (13) Q (15)
# of inspections during production;: P (5) Q (3)
Total production set-up costs $336,000
Total inspection costs $192,000
Total overhead costs $230,400
Other overhead costs are absorbed on the basis of labour hours.
I have done the following
Production set up $336K/28 ie the # of production runs then I multiply by 15 = 180K
Inspections $192K/8 ie total # of inspections the multiply by 3 = 72K
General overhead $230,400K/18 Labour hours by *10 = 96K
180K+72K+96K = 380K/9.6K = €39.58
Could you tell me where I have gone wrong?
Thanks
General overhead should be $230000 / (2400x8hrs)+(9600x10hrs) divided by 96000 units = $192000
# 180k + 72k + 192k = 444k / 9.6k = $46.25
Thanks
You are welcome 🙂
Hi
I am looking at the MCQ
A company manufactures two products, P and Q for this the following information is available:-
Budgeted production: P (2,400 units) Q (9,600 units)
Labour hours per unit: P (8) Q (10)
# of production runs required: P (13) Q (15)
# of inspections during production;: P (5) Q (3)
Total production set-up costs $336,000
Total inspection costs $192,000
Total overhead costs $230,400
Other overhead costs are absorbed on the basis of labour hours.
I have done the following
Production set up $336K/28 ie the # of production runs then I multiply by 15 = 180K
Inspections $192K/8 ie total # of inspections the multiply by 3 = 72K
General overhead $230,400K/18 Labour hours by *10 = 96K
180K+72K+96K = 380K/9.6K = €39.58
Could you tell me where I have gone wrong?
Thank
Sir, this question :
A company manufactures two products, P and Q for this the following information is available:-
Budgeted production: P (2,400 units) Q (9,600 units)
Labour hours per unit: P (8) Q (10)
# of production runs required: P (13) Q (15)
# of inspections during production;: P (5) Q (3)
Total production set-up costs $336,000
Total inspection costs $192,000
Total overhead costs $230,400
Other overhead costs are absorbed on the basis of labour hours.
The way I calculate it is: i multiply the budgeted production units of the 2 productsnd total them up together becoming 115,200 with its respective labour hours per unit and total them up together becoming 115,200. then divided it with the total overhead costs and got $2. I do not know where have I gone wrong.
That bit of the answer is correct.
However, two problems:
One is that set-up costs and inspection costs are also overheads.
Second is that the question wants to know the overhead cost per unit of Product Q.
and Sir, traditional costing tends to OVER or UNDER allocate costs to low-volume product? Coz here, the correct answer mentioned are both statements true but the answer at the back of your F5 lecture course notes is written as only statement 2 is true. Which is which?
I don’t know if you are using an old set of the Lecture Notes – maybe there was a typing error that was later corrected.
However, both the lecture notes and this test give the same correct answer which is that both statements are true.
Traditional costing tends to under-allocate costs to low-volume products.
Why does it tend to under-allocate costs to low products?
Here is a very simple illustration.
Suppose a business produces 100 units of product A and 1000 units of product B.
The total overheads are $1,100.
Tradition costing will absorb the overheads at $1 per unit. So a total of $100 for product A and a total of $1,000 for product B.
Suppose now that the overheads of $1100 are set-up costs, and each product needs 1 set-up regardless of how many are produced (so 2 set-ups in total).
Since the cost per set-up is $550, the total overheads should (under ABC) be $550 for A and $550 for B.
The problem does not always exist, but traditional absorption does tend to under allocate costs to low volume products as I have illustrated above.
But with ABC, costs will not be under-allocated to low volume products (fair allocation of costs), is that what you were trying to say?
I repeat, absorption costing does tend to under-allocate costs to low volume products (as compared to ABC).
I do not understand this one either.
My workings:
P Hours 19200 and Q 96000
Runs 13 @ 185units per run and Q 15 runs at 640units per run
Inspections 5 and 3 respectively, with Q (3 inspections per run, each run 640 units)
So Runs are 12000 each (336k/28), divide by 640 to get a per unit value = 18.75
Inspections (192k/8) = 24000. Q has 3. 24000*3 / 9600units = 7.50
Labour/other hrs (230400/115200 total hours) = 2 per hour. Q needs 8 hours, therefore 16.00 per unit.
Q = $42.25?
Please help.
I do not understand this one either.
My workings:
P Hours 19200 and Q 96000
Runs 13 @ 185units per run and Q 15 runs at 640units per run
Inspections 5 and 3 respectively, with Q (3 inspections per run, each run 640 units)
So Runs are 12000 each (336k/28), divide by 640 to get a per unit value = 18.75
Inspections (192k/8) = 24000. Q has 3. 24000*3 / 9600units = 7.50
Labour/other hrs (230400/115200 total hours) = 2 per hour. Q needs 8 hours, therefore 16.00 per unit.
Q = $42.25?
Please help.
Yes please add the answer working, its easier and quicker to follow up that way. upon submission if the answer is incorrect the correct working should also pop up..even in an event that the answer is right the working should still show for the sake of comparison
We provide this website free of charge and the current software does not allow the workings to appear.
When we can afford it we will upgrade but until then you should ask here if you have a problem.
What is the solution to question 5?
I am afraid that until now the questions have been appearing in a random order (this has now been corrected).
But it does mean that what you got as question 5 could appear as question 1 for other people.
So I don’t know which question you mean.
Please say a bit more about what was in the question and then I will help you 🙂
(As I say – the problem has now been corrected, and so it won’t be a problem in future).
Please add the answers working for students to work out the answers in MCQ questions
We provide this website free of charge and the current software does not allow the workings to appear.
When we can afford it we will upgrade but until then you should ask here if you have a problem.
(I assume, of course, that you have watched the relevant lectures on this website.)