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Hello Sir,
Is the set-up cost and run cost the same ,
I mean can we consider the no of setups and production runs as cost drivers for the setup cost
Thanks,
Yes – they are the same thing (unless the question actually tells you different)
Hi Mr John
What about the cost driver for machine running cost could it be the production runs or must be the machine hours .
Thanks,
It depends what information you are given in the question. However it will certainly not be production runs, and will almost certainly be machine hours.
Hi John,
I’m trying this question 2008 June Jola company on ABC I don’t understand why the question has given a proforma of information about paper 0.75 printing 1.45 machining cost 1.15 and overheads of 2.3 for CB and TJ separately per unit and in part a it asked to calculate cost per unit and the margin for the CB and TJ using machine hours for section A I copied the proforma till machine cost and for overheads I calculated the OAR based on machine hours which is not right in solution it’s totally different and also in question you have to convert kegs into grams litres into Ml and minutes into hours this kind of question is extremely confusing.. Could you kindly explain how to actually solve such a question if encountered in exam?
Also is there any formula of how to find out number of set ups and number of production runs some times a information of batch Units is given and set ups also given and production runs also given how do we calculate all..please I’m confused can you help?
Thanks
NoureebI don’t know whether you are looking at the original exam question or not, but part (a) of the original question does not ask for any calculations at all.
Part (c) requires the cost per unit and the margin. The cost per unit is the total of all the costs – not just overheads – and paper, printing, and machine costs are part of the total cost per unit. But the costs increase for the coming year – the figures in the table are for the current year.
If you read the paragraph above the table, it says that they currently use absorption costing. So the 2.30 and 2.95 are the overheads per unit using absorption costing – you are not asked to check them.
It is only the property costs that are based on machine hours, and that is what the answer has done. You need to calculate the total machine hours for each product – the question gives them per unit. (I do assume that you have watched the lecture on ABC, because I stress in it to watch out for this sort of thing).
Converting kgs to grams and minutes into hours is something an accountant is expected to be able to do – it just means reading the question very carefully.
You dare not go into the exam simply learning formulae – at least 50% of the exam will be written (not calculations) deliberately to check you understand.
Suppose that we produce 100,000 units. Suppose we produce them in batches of 10,000 each time. That means we will have 100,000/10,000 = 10 production runs and also 10 set-ups.Obviously you can no longer get a question of this length. This was 25 marks, but questions now are either 10 or 15 marks.
(However do realise that in this question 12 of the 25 marks were purely for writing. It is only parts (c) and (d) that involved arithmetic. That split of approximately 50:50 between written and arithmetic is still the same.)
Thank you John.
But I was actually looking this question from Kaplan exam kit and part A and b is only given in exam kit which is actually part C and D also my point is when you look at the solution you have reproduce all the cost per unit be it paper, printing machine cost and overheads for part C and for part D you have gone further for property cost, quality control and production setups using the cost driver . So for me it’s confusing in a sense that the why the given table has different per unit cost when you have to reproduce it on the basis of ( point 1,2,3 and 4) why this line is given if the overheads above were reallocated under ABC principle then the result would be that the overhead allocation to CB would be $0.05 higher and the overhead allocated would be $0.03 lower than previously..?
This question is difficult to comprehend.
I do not have the Kaplan Exam Kit, and so I can not be certain, but I am guessing that what has made it confusing is probably because they have obviously ‘cut down’ the original exam question and probably they have left some bits in that now don’t make sense.
(This has happened to quite a few BPP questions as well – they have taken the original questions and then made them shorter, but have taken out some relevant bits and left in some irrelevant bit.)Because I don’t have the Kaplan Kit I can’t really say any more. I think best is if you look at the original exam question (if you search ‘Jola’ in Google then you should be able to find it, or alternatively try “ACCA F5 June 2008” in Google). The original question was for 25 marks, but although now the exam questions are shorter, each bit of the original question can still be examined.
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