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- This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.

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- October 1, 2021 at 8:29 pm #636842
Sir, I’m trying to attempt this but I am unable to answer this. Could you please help me with this? I apologize for asking such a lengthy question.

Anderson Ltd has a single production process for which the following costs have been estimated for the period ending 31 December 2015:

Material receipt and inspection cost: $15,600

Power cost: $19,500

Material Handling cost: $13,650

Total = $48,750Three Products X, Y and Z are produced by workers who perform a number of operations on material blanks using hand-held electrically powered drills. The workers have a wage rate of $9 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 labour in minutes——–24—————40————-9

No. of Power drill per unit—— 6—————–3————-2Cost drivers:

Material receipt & inspection = Number of Batches

Process power = Number of Power Drill Operations

Material handling: Number of UnitsCalculate using ABC the budgeted product cost per unit for product X.

a) $8.56

b) $16.10

c) $18.12

d) $20.40October 2, 2021 at 9:08 am #636857Please do not simply type out a full question and expect to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will explain.

Have you watched my free lectures on ABC, because this is not a difficult question but is a very standard ABC question?

October 2, 2021 at 11:19 am #636861Material receipt and inspection cost: $15,600

Power cost: $19,500

Material Handling cost: $13,650

Total = $48,750Material receipt & inspection = Number of Batches per Unit

Process power = Number of Power Drill Operations

Material handling: Number of UnitsOverhead Absorption rate (OAR):

i) Material receipt & inspection: ($15,600 / 550 batches) = $28.36 per batch

Number of Batches per Unit:

Product X : (2000 unit / 10 batches) = 200 batches

Product Y : (1500 unit / 5 batches) = 300 batches

Product Z : (800 unit / 16 batches) = 50 batches

Total Batches per Units—————-= 550 batchesii) Process power: ($19,500 / 11 drills per unit) = $1772.72 per unit

Number of Power Drill Operations per Unit:

Product X : 6

Product Y : 3

Product Z : 2

Total Drills per unit = 11iii) Material handling: ($13,650 / 4300 units) = $3.17 per unit

Number of Units:

Product X: 2000

Product Y: 1500

Product Z: 800

Total Units: 4300Absorb Overhead to each Product:

i) Material receipt & inspection to Product X: ($28.36 x 200 batch) = $5,672

ii) Process power to Product X: ($1772.72 x 6 Drills per Unit) = $10,636.32

iii) Material handling to Product X: ($3.17 x 2000 units) = $6,340

Total cost absorbed to Product X = $22,648.32

Budgeted product cost per unit for Product X:

($22,648.32 / 2000 units) = $11.32 cost per unitI know that this answer is different from the MCQs given maybe I copied the question incorrectly but could you please say a word about whether did I calculate everything correctly or not?

Thanks for your much help 🙂

October 2, 2021 at 4:03 pm #636873the materials receipt and inspection cost is wrong.

The number of batches is 10 + 5 + 16 = 31.

Therefore the cost per batch is 15,600 / 31 = 503.23, and the total going to product X is 10 x 503.23 = $5032.3For the power cost, the number of power drill operations is (2,000 x 6) + (1,500 x 3) + (800 x 2) = 18,100. Therefore the cost per operation is 19,500 / 18,100 = 1.07735, and the total going to product X is 2,000 x 6 x 1,07735 = 12,928.

For material handling, the number units is 2,000 + 1,500 + 800 = 4,300.

Therefore the cost per unit is 13,650 / 4,300 = 3.174 and the total going to product X is 2,000 x 3.174 = 6,348.Using these figure you can calculate the overheads per unit. For the total budgeted cost per unit you also need to add on the labour cost per unit and the materials cost per unit (although you have not typed the material cost per unit).

It seems that have not watched my free lectures on ABC because I work through a very similar example to this one.

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