- This topic has 5 replies, 3 voices, and was last updated 10 years ago by
.
- Posts
in June 2014 question no.1
according the past paper answer, it is not necessary to find the cost per driver,right.
Because they have taken the total cost per pool and multiplied it by the driver quantity of each product divided by the total driver quantity to arrive at the total overhead cost( cost pool) for each product.and then divided it by no.of units to arrive at overhead cost per unit.
so finding the cost per driver is not useful,right.I did it by taking the cost per driver of each product and multiplied it with driver quantity of each product divided by total units of each product.
is the method i did is wrong? or is there another way to do it?If you watch the free lecture, I do explain that there is more than one way of calculating the overhead cost per unit (although they give the same final answer).
As I also state in the lecture, the quickest and safest way is to do what you have written – calculate the cost per driver, then the total cost for each product, and then the cost per unit.
That is what the examiner has done in her answer. She has written down in the answer the cost per driver in each case (e.g. she has written “cost per machine set-up = $2434.78”)
I don’t understand why you have written “according the past paper answer, it is not necessary to find the cost per driver,right”. The examiners answer does not say that at all, and does find the cost per driver for each activity!!!
sorry,what i meant was although she finds the cost per driver (“cost per machine set-up = $2434.78?), she doesn’t use it for further calculation.
only if we do the other way, we tend to use the cost per driver.
so that’s why i stated if we do in the examiner’s way, we do not need to find the cost per driver.examiner allocates the cost to each product
for eg: machine set up cost for product X in this way$280,000 * (40 /115) = $97,391
and then taken all the allocated cost and divided it to arrive at the overhead cost per unit
so here she doesn’t use the cost per driver,therefore if we are using the examiner’s way there is no need to find cost per driver. am i right?
She has arrived at the 97,391 by multiplying the cost per driver (280,000/115) by the number of activities (40).
You don’t actually need to write down the cost per driver (unless obviously the question asks for it) but you are effectively still using it.
I really do suggest that you watch the lectures.
Hi John,
there was a question about true or false:
In the short run all the overhead costs for an activity vary with the amount of the cost driver for the activity.
The answer is false, and the explanation being is:
Some costs of activities may vary with the volume of the activity, but other costs of the activity will be fixed costs.
My query is, if ABC measures fixed costs and gives them cost drivers, then arent they variable in the short run kind off?
Thank you in advance.
No – a truly fixed cost is fixed in total by definition.
The reason for using ABC is to be able to absorb the overheads on a per unit basis between the various products in the most sensible/’fair’ way. It does not make the costs variable. We are still absorbing just as we do with traditional absorption – but, again, in a more sensible way.
It also, importantly, makes us find out why we are incurring the overheads. That can lead to greater efficiency, and then maybe we will be able to save some overheads.
The free lecture on ABC will help you, because I discuss all of this in the lecture 🙂
- You must be logged in to reply to this topic.