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activity based costing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › activity based costing

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 16, 2021 at 3:20 pm #640796
    fizaali
    Participant
    • Topics: 53
    • Replies: 36
    • ☆☆

    [Question]
    Anderson LTD has the following costs estimated for the period ending 31 Dec 2015:

    Costs Pool:
    Material receipt and inspection cost:—-$15,600
    Power cost:————————————$19,500
    Material Handling cost:———————$13,650
    Other costs:————————————$15,250
    Total:———————————————$64,000

    Cost Drivers:
    Material receipt & inspection = Number of Units per batch
    Process power——————-= Number of Power Drill Operations
    Material handling—————-= Number of Units
    Other cost————————-= Labour hours per hour

    The following budgeted information has been obtained:
    ————————————Product X—-Product Y—-Product Z
    Production Quantity————2000———–1500———-800
    Batches of material————–10—————-5————16
    Direct material per unit———$5—————$3————$6
    Direct labor in minutes——–24—————40————-9
    No. of Power drill per unit—— 6—————–3————-2

    [Answer]
    Overhead Absorption rate:

    1) Material receipt & inspection:
    Cost driver is the number of units per batch so we need to divide production units by batches.
    [ OAR = ($15,600 / 550 batches) = $28.36 per batch ]

    2) Process power:
    Cost driver is the number of power drill operations so we need to add up all the number of powers.
    [ OAR = ($19,500 / 11 drills per unit) = $1773 per unit ]

    3) Material handling:
    Cost driver is the number of units so we need to add up all of the units.
    [ OAR = ($13,650 / 4300 units) = $3.17 per unit ]

    4) Other costs:
    Cost driver is labor hours so we need to add up all of the labor hours.
    [ OAR = ($15,250 / 1920 hours) = $7.94 per unit ]

    Absorb Overhead to Product X:

    1) Material receipt & inspection to Product X: ($28.36 x 200 batch) = $5672
    2) Process power to Product X: ($1773 x 6 drills) = $10638
    3) Material handling to Product X: ($3.17 x 2000 units) = $6349
    4) Other cost to Product X: ($7.94 x 800 hours) = $6352
    Total cost absorbed to Product X = $29011

    Overhead cost per units = $29011 / 2000 = $14.505

    Is that all correct sir?

    November 17, 2021 at 7:42 am #640846
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54656
    • ☆☆☆☆☆

    Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and workings.

    Your answer is not correct.

    2. The number of power drill operations is not 11. It is (2,000 x 6) + (1,500 x 3) + (800 x 2)

    The others seem to be correct, except that in your workings they are not ‘per unit’ for (3) and (4) they are per power drill operation and per labour hour. But you have used the figures correctly when absorbing (apart from (2) as above).

    November 17, 2021 at 11:38 am #640865
    fizaali
    Participant
    • Topics: 53
    • Replies: 36
    • ☆☆

    Thanks for your reply. 🙂 🙂

    November 17, 2021 at 3:13 pm #640903
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54656
    • ☆☆☆☆☆

    You are welcome 🙂

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    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘activity based costing’ is closed to new replies.

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