- This topic has 1 reply, 2 voices, and was last updated 8 months ago by Cath.
August 4, 2021 at 4:01 pm #630389odislaine
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Bybel Co manufactures three products, XX, YY and ZZ. The products are
sold into a competitive market, and customers are relatively price
sensitive as the price of each product can significantly affect their buying
behaviours. At the same time, Bybel is under pressure to reduce costs
and improve profitability because competitive rivalry in the industry has
limited profits and lead to competitive moves, including price cutting
and a burden of spending on product improvements and innovation.
Each product uses the same materials, but in different quantities, and
the same type of direct labour.
For many years, the company has been using full absorption costing and
absorbing overheads on the basis of direct labour hours. Selling prices
are then determined using cost-plus pricing. This is common within this
industry, with most competitors applying a standard mark-up.
Budgeted production and sales volumes for XX, YY and ZZ for the next
year are 3,500 units, 4,800 units and 780 units respectively.
The budgeted direct costs of the three products are shown below;
XX YY ZZ
Direct Materials 250.00 260.00 198.00
Direct Labour @ £22 per
hour 330.00 330.00 330.00
In the next year, Bybel Co also expects to incur indirect production costs
and these are analyzed as follows;
Perform Quality Inspections 5,656,500 Number of Quality Inspections
Implement Product Design
Changes 2,514,000 Number of Design Change Requests
Operate Machinery 1,508,400 Number of Machine Hours
Plant Management and Security 2,891,100 Number of Units Produced
Question 2 continues on the next page.
5R6Z0041_2021_R Page 7/11
Question 2 continued.
The following additional data relates to each product;
Product Product Product
XX YY ZZ
Batch size (units) 50 80 40
Number of Quality Inspections per Batch 1 4 1
Number of Design Changes in total 20.0 27.5 4.5
Machine hours per unit 15.0 12.5 14.0
The finance director has suggested using activity-based tools instead of
full absorption costing, since this will dramatically improve the
profitability of the organization.
(a) Calculate the budgeted full production cost per unit of each
product using Bybel Co’s current method of absorption costing. All
workings should be to two decimal places. (3 marks)
(b) Calculate the budgeted full production cost per unit of each
product using activity-based costing. All workings should be to two
decimal places. (13 marks)
(c) Using the numbers that you have calculated in parts (a) and (b),
evaluate the change in the full production cost per unit of each
product caused by a move to activity based costing compared to
using absorption costing. Within your response you should seek to
explain in detail why the changes to each of the full production
costs per unit have occurred. (9 marks)
Total 25 marksOctober 26, 2021 at 4:44 pm #639154CathModerator
- Topics: 0
- Replies: 420
Hi there – no need to worry – this isn’t a CIMA question for BA2 ( they are approx 1.5 minutes long each -so youd never receive a 25 mark essay request
Hope thats ok
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