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A company is changing from traditional abs costing based on labour hrs to ABC.ovhd 156000 related to taking material deliveries.
Product
Total units required X:1000 Y:2000 Z:3000
Delivery size: X:200 Y:400 Z:1000
Total labour cost:360000 and 45000 labour hrs.each unit of each product takes the same number of direct hrs.
Assume company uses the number pf deliveres as cost driver
What is the increase or decrease in unit cost for Z arising from change of abs costing to activity based costin
Can you explain please?You must have an answer in the same book in which you found the question, and so you should ask about whatever it is in the answer that you are not clear about.
You need to calculate the unit cost for Z using traditional absorption costing, absorbing on labour hours. Then you need to recalculate using ABC with number of deliveries as the driver.
The question then required the difference between the two costs.The approach for both traditional absorption and ABC is covered in detail, with examples, in my free lectures on ABC.
The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
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