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questions of absorption costing and abc

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › questions of absorption costing and abc

  • This topic has 5 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • June 14, 2019 at 10:51 am #520466
    birla
    Member
    • Topics: 2
    • Replies: 8
    • ☆

    Question number 1 = The ABC Company manufactures two products, Product Alpha and Product Beta. Both are produced in a very labour-intensive environment and use similar processes. Alpha and Beta differ by volume. Beta is a high-volume product, while Alpha is a low-volume product. Details of product inputs, outputs and the costs of activities are as follows: Direct labour hours/unit Annual output (units) Number of purchase orders Number of set-ups Alpha 5 1,200 85 60 Beta 5 12,000 75 40 –––– –––– 160 100 –––– –––– Fixed overhead costs amount to a total of $420,000 and have been analysed as follows: $ Volume-related 100,000 Purchasing related 145,000 Set-up related 175,000 Using a traditional method of overhead absorption based on labour hours, what is the overhead cost per unit for each unit of product Beta?

    Question number 2=Timely Co manufactures three products, X, Y and Z. Each product uses the same materials and the same type of direct labour, but in different quantities. For many years, the company has been using full absorption costing and absorbing overheads on the basis of direct labour hours. Budgeted production and sales volumes for X, Y and Z for the next year are 20,000 units, 16,000 units and 22,000 units respectively. The budgeted direct costs of the three products are: X Y Z $ per unit $ per unit $ per unit Direct materials 25 22 28 Direct labour ($12 per hour) 30 36 24 Batch size (units per set-up) 5,000 8,000 4,000 Number of purchase orders per batch 40 50 40 Machine hours per unit 1.5 1.25 1.4 In the next year, Timely Co also expects to incur indirect production costs of $1,377,400, and the company has calculated the Overhead Absorption Rate (OAR) to be $9.70 per direct labour hour. What is the full production cost per unit of product Z, using Timely Co’s current method of absorption costing?

    i know that very easy Question but i m not getting it how to start,…..please help me out..
    thanking u in Advance sir……

    THANK YOU SOO MUCH SIR FOR UR EARLIER ANSWER FOR F5 Topic. i wanted to thank you at that time for that answer u relpied but not finding the “relpy button” to thank u so i thanked here…

    June 14, 2019 at 10:53 am #520467
    birla
    Member
    • Topics: 2
    • Replies: 8
    • ☆

    Sir any Question i begin doing, i am blank at it About how to start with Question like this two Questions ….

    June 15, 2019 at 10:00 am #520517
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    Why are you attempting questions for which you do not have answers? You should be using a Revision Kit from one of the ACCA approved publishers – they contain answers and explanations.

    Q1. You know what the total overheads are (420,000)
    The question says that they are absorbed on labour hours, so you can calculate the total labour hours (((5 x 1,200) + (5 x 12,000) = 66,000)

    Therefore the absorption rate is 420,000/66,000 = $6.364 per hour.

    Therefore the overhead cost of Beta is 5 hours x $6.364 per hour.

    Q2 is approached in exactly the same way.

    You have headed up your post ‘absorption costing and ABC’, but these two questions have nothing to do with ABC because they both say that they are using traditional absorption costing on the basis of labour hours.

    You should watch my free lectures because all of this is explained in the lectures. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.

    June 15, 2019 at 10:50 am #520527
    birla
    Member
    • Topics: 2
    • Replies: 8
    • ☆

    thank you so much sir
    i will look that from now on

    June 15, 2019 at 2:24 pm #520537
    birla
    Member
    • Topics: 2
    • Replies: 8
    • ☆

    sir i solved this Question 2 .

    24/12=2

    OVERHEAD COST – 2*9.7=19.4
    DM=28
    DL=24

    O/H=19.4
    total production cost per unit ist 71.4
    is that rite sir??

    June 15, 2019 at 2:43 pm #520539
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    Yes – it is right.

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Viewing 6 posts - 1 through 6 (of 6 total)
  • The topic ‘questions of absorption costing and abc’ is closed to new replies.

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