Example 1 ABC

1. Products obtained A B
Production departments Processing Assembling
Indirect costs:
Processing 50,000 mu
Assembling 75,000 mu
Distribution 25,000 mu

Items A B
No of units 4,000 units 2,000 units
Number of direct labour hrs 10,000 hrs 11,000 hrs
Number of machine hrs 7,500 hrs 2,500 hrs
Direct costs 40,000 mu 75,000 mu

Distribution costs are allocated to products using the manufacturing costs as allocation basis.
Compute manufacturing costs and full costs in a two-stage approach if the allocation basis for
the manufacturing departments is a) the number of direct labour hrs and b) the number of
machine hrs.

The following information has been considered for ABC approach:

Activities Costs Cost driver
Manually processing 138,000 Number of direct labour hrs
Automated processing 400,000 Number of machine hrs
Finishing 195,000 Number of finishing hours (1.500 hrs for A and
4.500 hrs for B)
Distribution 115,000 Number of sold batches (20 for A and 80 B)

Required: Compute the full cost under the ABC approach