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Could you help with this question? Its a bit long though.
A production plant produces about 100 different types of product. Its largest selling product is Product A; its smallest is Product B. Relevant data is given below:
Product A Product B All products
Units produced pa 50,000 1,000 500,000
Material cost p/u $1 $1
Direct labour p/u 15 mins 15 mins
Machine time p/u 1 hour 1 hour
No. of set ups pa 24 2 500
No. of purchase orders for materials 36 6 2,800
No. of times materials handles 200 5 12000
Direct labour cost p/hr $5Overhead costs allocated to cost pools:
Set up $280,000
Purchasing $145,000
Materials handling $130,000
Machines $660,000
Total $1,215,000Total machine hours are 600,000 hours
Required:
1. Calculate a unit cost for product A and Product B using:
a. Traditional absorption costing with overheads absorbed on the basis of machine hours
b. Activity based costing techniquesEverything came out together, sorry about that. The numbers should fall under Product A, Product B and All products.
Latoyah, I really cannot write up here a full answer to the whole question!!
Have you watched the free lecture on Activity Based Costing? (because if you haven’t then you really should, because this is question is just the same as the example I go through – its different numbers, and a tiny bit longer, but otherwise the same)
Also, presumably you have got an answer (from the same source that you got the question)?
It will be much better if you ask about the parts of the answer that you do not understand – then I can try and help.
I haven’t watched the lecture as yet, i was looking for it but didn’t find it. Could you please direct me to it?
And the problem I’m having is calculating the OAR bases for the Overhead costs. I’ve done the others already.
You can find all the lectures listed on this page:
https://opentuition.com/acca/f5/acca-f5-lectures/
(you need to download the free Course Notes that go with the lectures)The ABC cost drivers are as follows:
Set-up costs: number of set-ups
Purchasing: number of purchase orders
Mat handling: number of times material handled
Machines: machine timeThank you sir! Its much clearer now since i saw the lecture. Its like we’re apportioning the costs and finding the OAR. Thanks! 😀
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