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PM Chapter 1 Questions Activity based costing
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100% and full understanding and ability to apply ABC – the lectures were spot on.
Lee
I got 60% on my first attempt, a little confusion on the theory questions 2 and 4. need to sharpen my craft there. Thanks.
馃檪
Hello sir,
In question 3, how do you get to 115,200?
Kind regards
The total number of labour hours is (2,400 x 8) + (9,600 x 10) = 115,200
Thanks for the lectures sir, I got 80% in the Practice Tests.
Great 馃檪
Thanks for the lectures sir, I got 100% in the Practice Tests.
Great 馃檪
Very helpful ?
Thank you 馃檪
Dear Sir,
For question 3, I wrongly match the cost driver of setup cost and other overhead costs; how can we identify or co-relate the overhead costs to each cost driver? It is because for Chaper 1 of example 1, each cost driver can easily match with each overheads cost.
The question specifically states that ‘other overheads’ are to be absorbed on the basis of labour hours.
Set-up costs are based on production runs as explained in the free lecture (but is helped anyway by the fact that inspection costs are obvious, and so there are only production runs left to choose 馃檪 )
Thank you John, will be more careful.
You are welcome 馃檪
Thank you for your amazing support to us.
Do you suggest we do the revision kit after every chapter?
wouldn’t the questions have more parts that require other chapters?
Referring to Question 2! How a traditional costing method could under-allocate overheads to low-volume product? The exercise we did earlier, we over-allocated overheads to product A due to which it turned out to be a loss-making, however, under ABC, we realised that it was not product A that was loss-making rather it was product C! kindly, shade some light on this query.
In the example that I work through in the lecture, the low volume product is product C (with only 2,000 units produced). Tradition absorption costing allocated few overheads to this product than when we used ABC – traditional absorption costing under-allocated the overhead costs to product C.
hello i dont understand why the fourth question is true for both statements. does ABC method has high cost than the benefit it gives for us?
Yeh, sometimes the cost of implementing ABC is greater then benefits, which means the cost per unit is similar to Absorption costing, this might be because the the product is regular & does not specific activity included.
Hello sir how is ABC costing method costly? I understand that it is time consuming but how does is become costly?
Mainly because of the time taken – that needs paying people to spend the time 馃檪
Alright thank you sir
Can we have some more Questions like this please. I am an A level teacher and i am struggling with ABC costing.
No – our tests are only meant to be quick tests as students are studying. We make it clear that all need to buy a Study Text from one of the ACCA Approved Publishers because they are full of past exam and other exam standard questions.
The tutorial and the practice questions are really helpful and the doubt clarification by you sir to all the queries with much attention is extremely appreciable. Thank you so much sir… 馃檪
Thank you for your comment 馃檪
Sir I could not understand the 3rd question answer how in other overhead the amount 115200 came?
I did 230400/18*10= 128000
We use the total hours for each product (not the hours per unit).
So the total hours for P are 2,400 x 8 = 19,200, and for Q are 9,600 x 10 = 96,000. So in total 115,200 hours.
(It is the same idea as in the example I work through in my free lecture.)
Okay sir. Got it
And 1 more question Sir,
In the first question after finding the cost per setup ,i.e., $1000
Next step can’t we do $1000/ 1000 units?
And get $1.00/unit as the answer?
hi.i can’t see the question I have only see the comments
I don’t have any questions but want to thank you for your goodness towards students
Please suggest me the best revision book
Thanks
Thank you for your comment.
BPP and Kaplan are the ACCA Approved Publishers and their books are both as good as each other. I myself have the BPP Revision Kit (and you can get a 20% discount from BPP if you click on the BPP link that is on most of the pages on our website).
I calculated ‘Q’ unit cost correctly. But has given ‘P’ unit cost to answer.
Thank you Sir
I assume that you are referring to question 3.
The question asks for overhead the cost per unit of Q, and the correct answer is the overhead cost for Q which is $46.25.
sir “number of inspection during production” is a bit confusing because it might refer to both “the number of inspection during the whole production” in which case total inspection will be 8 (3 + 5) but if it is assumed that “the number of inspection during each of the production run” which i did, the total inspections would be 110 (13*5+15*3). my question is how do we avoid these confusions because in some other instances if you dont assume the answer turns out wrong.
The cost is the total cost of all inspections and therefore the number of inspections needed is the total number.
Did you not watch my free lectures before attempting the test?
i did watch the lecture before attempting the test, but i found the wording of the question a bit confusing. to state it simply how do we know the inspections are for the whole production and not for the individual production runs?
If it was as you were thinking then it would have said “number of inspections per production run”. The fact it says number of inspections during production means the whole production (not per run) 馃檪
I do understand that sometimes the wording can confuse (especially when reading quickly because of the time pressure in the exam) but there is no rule I can give you as regards avoiding the confusion – it depends on the wording (this was a past exam question). Here, as I wrote before, it would have said production run if it was meaning the number of inspections per production run (and to have 5 inspections in each production run would seem rather unlikely anyway 馃檪 )
i got my answer. Thank you sir
in the last question it says which of the following is not an advantage of ABC, although all accept for 3rd are advantages but 3rd is a disadvantage.
when it says ”not an advantage” doesn’t necessarily mean that it would be a disadvantage.
in short the third option is a disadvantage
it is possible that if something is ”not an advantage” it may not be a disadvantage either.
I assume that you are referring to the choice “it can lead to a reduction in total overheads” (which will not also appear as the third choice because the software deliberately changes the order).
If it is this statement that you are referring to, then it is certainly not a disadvantage. It is the main advantage of using ABC as I explain in my free lectures on this.
The correct answer is that “it may be impossible to allocate all overheads to specific activities” because it is a fact and is certainly not an advantage.
My understanding is that the total of the overheads stays the same, just the allocation of the overheads to individual products changes. Or is it meant to say that the total of overheads allocated to individual products might reduce.
The calculations will not change the total overheads.
However, as I explain in my free lectures, the main benefit in practice for using ABC is that it forced the company to find out what is causing the overheads. That leads to using them more efficiently and results in a saving of overheads.
Again, I explain this in my lecture with examples.
Hello,
For the first question, while calculating the total cost for product X why is 20000 divided by 1000?
Also I am confused witht the second question, can someone please explain why both the statements are right?
Malvi210, Keep one thing in your mind that when there is word batches in question then you must have to find number of batches. In this case, we will find number of batches by dividing 20000 with 1000.
What nomanashaf has written is correct for the first question.
As far as the second question is concerned, statement 2 is the definition of a cost driver as I explain in my free lectures on ABC.
Statement 1 is best explained by looking back at the example in the notes that I work through in my lecture. Product C is a much lower volume than the other 2 products. Using traditional absorption the overheads are $2.84 per hour whereas with ABC the overheads are $8.63. I do explain in the lecture why this has happened.
Thanks so much. The tutorial has been extremely helpful.
Thank you for your comment 馃檪
Hi everyone,
I am quite confused with the solutions in the task with products P and Q. In the feedback, you arrived to 46.25 (the same as I indicated as a correct answer, but it was marked as wrong answer, saying that the correct answer is 140.64. I am bit confused. Thank you in advance for clarifications!
I am puzzled because I have just checked the test again and it is marking 46.25 as being the correct answer.
Try reloading the page and trying the question again.
Hie
Could you please explain to me how you allocated other overheads on that question?
They have been absorbed on the basis of the labour hours.