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abc overhead cost per unit

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  • This topic has 2 replies, 2 voices, and was last updated 2 months ago by Cath.
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  • February 7, 2022 at 11:09 am #648232
    radkheta
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    A company makes three products, E, F and G. Total overheads for the year are expected to be $1.2 million, with the following split between cost pools:
    Cost driver information has been estimated as follows:
    no of quality inspections: 84000
    no of purchase requisitions: 12000
    no of materials handled: 240000 kg
    The company plans to make 10,000 units of product E in the year, with an expected direct cost of $0.60 per unit. This annual production of product E is expected to require 20 quality inspections, 28 purchase requisitions, and 400 kilogrammes of materials.
    What is the overhead cost per unit of product E?

    the answer is £0.1. how do you get this answer please?

    February 19, 2022 at 3:39 pm #648901
    radkheta
    • Topics: 3
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    can someone please answer as i have my exam soon

    April 7, 2022 at 9:07 pm #652851
    Cath
    Moderator
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    Hi, Sorry for the delay, but this is a straightforward CIMA question that is dealt with entirely by our video lectures….

    I also dont get same exact answer as your 0,1 ( I get more like 0.169 ..even allowing for rounding),

    However,

    1.2million split between 3 x cost pools of quality, purchasing and materials handling. So $400,000 overheads per activity.

    The we find cost per cost driver by sharing that $400,000 over the total number of activity drivers relating to that cost..

    Eg
    $400,000 inspection costs for 84,000 inspections = $4,76 per inspection

    We do the same to find $33.33 per purchase requisition

    And same to get $1.67 per kg of materials handled.

    Now we have the ‘cost per cost driver rates’ above we can apply to product E.

    This product line has
    20 inspections @ 4.76 each = $95.20
    28 purchase req @33.33each = $933.24
    400 kg of mats handled @1.67per kg = $668

    Total overheads for product E = $1696.44
    Then divided by 10,000 units = $0.17

    So I cant get back to your $0.1 per unit ( ive tried different ways of rounding – early or late – but no its definitely closer to 0,17)

    I hope thats ok + explains
    Thanks
    Cath

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