Activity Based Costing

Good Evening

Could someone please explain the calculations to arrive at the table below found on paper F5 pilot paper answer sheet question one part C

Products D and C are relatively minor volume products but still require a fair amount of administrative time by the production
department; ie they involve a fair amount of hassle. This is explained by the following table of `activities per 1,000 units
produced`.

Set-ups Materials Inspections movements
D 100 16 200
C 92 17 144
P 69 12 96
This table highlights the problem.
– Product P has fewer set-ups, material movements and inspections per 1,000 units than or C
– As a consequence product P’s overhead cost per unit for these three elements has fallen
– The machining overhead cost per unit for P is still two or three times greater than for products D or C, but because this
overhead only accounts for 20% of the total overhead this has a small effect on total cost.
– The overall result is P’s fall in production overhead cost per unit and the rise in those figures for D and C