Question 5

PROBLEM – 14
Marks
-  (adapted from p4 and p11 of your exercise book).
Pas encore
Traditional
and Activity Based Costing – Mass manufacturing (done in class)
répondu
(Adapted from Essential Finance & Accounting
for managers – chapter 15)
Noté sur 14,00
 
The company manufactures 3 technology products,
details of which are as follows:
 
 
ProductVolume (units)Material cost per
unit (€)Direct labor per
unit (hours)Labor cost per unit
(€)Selling price per
unit (€)
L 21 1 200 20 3 30 84
F 21 6 000 12 17 170 250
D 21 1 000 10 6 60 160
 
Manufacturing indirect costs for the period
under review amount to 492 K€. The company has decided to
use Activity based
costing to allocate these indirect costs to each type of product.
 
Manufacturing indirect costs have been allocated
to 5 activities as follows (all in K€):
 
Material
handling                                  52
Set-up costs                                           80
Maintenance
costs                                 60
Assembling
costs                                 120
Raw materials
storage costs                 180
Total
manufacturing indirect costs      492
 
The following
activity cost drivers have been selected:
 
Activity Cost drivers L21 F21 D21
Material
handling N° of
requisitions 4 000 2 000 2 000
Set-up
costs N° of
set-ups 100 80 60
Maintenance
costs N° of
call outs 80 50 20
Assembling
costs N° of
units assembled 1 200 6 000 1 000
Storage
costs Floor
area (sq.mtrs) 1 000 7 000 2 000
 
Assignment: (3 + 6 + 5 = 14 marks)
a/ Calculate the share of
manufacturing indirect costs that would be assigned to each product if the
company decides to use total direct labour hours as allocation
factor as per traditional costing.
b/ Calculate the share of indirect
manufacturing costs that would be assigned to each product using activity-
based
costing (compute each activity cost driver rate first).
c/ Produce a brief profit
statement by product for each of the above methods (you will stop at gross margin
as you only have information about
manufacturing costs)
 
END OF PROBLEM

  ANSWER            
  Profit Statement. Year 20XX Working Total L21 F21 D21 Mar
  $ $ $ $  
a Indirect cost (1)  
b Indirect cost (2)  
▲
     
c Profit (1)  
c Profit (2)          
 
SHOW YOUR WORKINGS
BELOW     Tota