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Category > Accounting Posted 26 Sep 2017 My Price 10.00

production depart­ments

Comparison of traditional product costing with ABC

Duo plc produces two products A and B. Each has two components specified as sequentially numbered parts i.e. product A (parts 1 and 2) and product B (parts 3 and 4). Two production depart­ments (machinery and fitting) are supported by five service activities (material procurement, material handling, maintenance, quality control and set up). Product A is a uniform product manufactured each year in 12 monthly high volume production runs. Product B is manufactured in low volume cus­tomised batches involving 25 separate production runs each month. Additional information is as follows:

 

Product A

Product B

Production details:

    

Components

Parts 1, 2

Parts 3, 4

Annual volume produced

300 000 units

300 000 units

Annual direct

    

labour hours:

    

Machinery department

500 000 DLH - 600 000 DLH

  

Fitting department

150 000 DLH

200 000 DLH
     

Overhead Cost Analysis

    
     
     

Overhead Cost Analysis

(E000s)

Material handling

1500

  

Material procurement

2000

  

Set-up

1500

  

Maintenance

2500

  

Quality control

3000

  

Machinery (machinery power, depreciation etc.)

2500

  

Fitting (machine, depreciation, power etc.)"

2000

  
 

15000

  

Cost Driver Analysis

    

Cost Driver

Part 1

Part 2

Part 3

Part 4

Material movements

180

160

1 000

1 200

Number of orders

200

300

2 000

4 000

Number of set-ups

12

12

300

300
         

Maintenance hours

7000

5000

10000

8000

Number of inspections

360

360

2400

1000

Direct labour hours

150000

350000

200000

400000

Direct labour hours

50000

100000

60000

140000
           

You are required to compute the unit costs for products A and B using (i) a traditional volume-based product costing system and (ii) an activity-based costing system.

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Maurice Tutor
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Status NEW Posted 26 Sep 2017 10:09 PM My Price 10.00

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