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Hi Sir, I am working some sample papers and I encountered a question where it is stating that Product A and B are produced in batches of 2k units and 100 units. In the same question it is stating that each A unit consits of 20 components and B 30 components….what should I do?
To fully explain I really need more of the question (if it is a past exam question then just say which exam).
However, suppose the total production of product A is 10,000 units. Then it means that they will make 10000/2000 = 5 batches.
The number of batches is likely to be relevant for calculating the amount of set-up costs to be given to each product.The number of components needed for each unit is likely to be relevant when calculating the material cost per unit.
(Have you watched the free lecture on activity based costing?)
Hi SIr John,
in batches in ABC,
based on my understanding,for example,
each batch inside consists of production units,
the overhead costs are absorbed by production units inside the “batch”,
a past year question has change the question by increasing the amount of batch from 400 to 500,
so we need to determine the new amount of production unit inside the batch to determine the accurate overhead cost allocation right?
Different overheads are absorbed in different ways depending on the cost driver. For something like set-up costs it will be absorbed on a per batch basis. So increasing the batch size will mean fewer batches and therefore less cost per batch.
I explain this by example in my free lectures on ABC.
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