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ABC with units per batch

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › ABC with units per batch

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • September 16, 2021 at 8:47 pm #635846
    Imran.Sajjad
    Member
    • Topics: 24
    • Replies: 7
    • ☆

    If Units and Batch size is given in an ABC question then how would we calculate the Overhead Absorption rate?

    Units / Batch = Units per Batch?

    For Example:
    Production run overhead is $120,000

    If we produce 1000 units in the 4 batches for Product A and 2000 units are made in the 5 batches then the overhead absorption rate will be calculated on units per batch like this:

    Units per Batch for Product A = 1000 / 4 = 250
    Units per Batch for Product B = 2000 / 5 = 400
    Total Units per Batch = 650

    Overhead Absorption rate = $120,000 / 650 = $184.62 per units batch

    Allocate Overheads to each product on units per batch:

    Product A : $184.62 x 250 = $46,155
    Product B : $184.62 x 400 = $73,848

    Can you please tell me is that correct way? Sorry to ask this because I have watched the lecture on ABC 🙂

    September 17, 2021 at 8:12 am #635868
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51563
    • ☆☆☆☆☆

    It depends what the question says is the cost driver for production runs. Most likely the cost driver is the number of batches and so the cost per batch = 120,000 / (4 + 5) = 13,333

    The total cost for product A is therefore 4 x 13,333 = 53,332, and therefore the cost per unit for product A is 53,332 / 1,000 = $53.33.

    The total cost for Product B is 5 x 13,333 = 66,665, and therefore the cost per unit for Product B is 66,665 / 2,000 = $33.33.

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