Cost Management Problems B 2

ABC COSTING PROBLEMS
1) From the following information you are required to show the overhead cost per unit under Activity Based Costin
Particulars Product A Product B

Annual Output (Units) 1,000 10,000
No. of Machine hours per unit 2 2
Total Machine hours 2,000 20,000
No. of purchase orders 80 160
No. of Set ups 40 60
The total overhead cost of the activities has been as under:

Volume related cost Rs.1,10,000.
Purchase related cost Rs.1,20,000.
Set up related cost Rs.2,10,000.
Total Rs.4,40,000.
Solution Activity based costing method of charging overheads :

i) Calculation of cost driver rates :
Volume related cost

a) Volume related activity cost =
Total machine hours
Total Purchase related cost

b) Purchase related cost =
No. of purchase orders
Total setup related cost

c) Setup related cost =
No. of Set ups
ii) Calculation of overhead cost per unit:

a) Volume related activity cost at Rs 5
(2000 X 5) = 10,000 (20,000 X 5) = 1,00,000
per machine hour
b) Purchase related cost at Rs. 500 per
(80 X 500) = 40,000 (160 X 500) = 80,000
purchase order
c) Setup related cost at Rs. 2,100 per
(40 X 2100) = 84,000 (60 X 2100) = 1,26,000
setup
Total Overheads 1,34,000 3,06,000
(/) Annual output (Units) 1,000 10,000
Overhead rate per unit Rs. 134 Rs. 30.6
2) A company manufacturing two products furnishes the following data for a year:
Product Annual output (units) Total machine hours
A 5000 20,000
B 60,000 120,000
The annual overheads are as under:
Volume related activity costs 5,50,000

Setup related costs 8,20,000
Purchase related costs 6,18,000
You are required to calculate the cost per unit of each product A and B based on
a) Traditional method of charging overheads using machine hour rate method
b) Activity based costing method.
Solution: Traditional Method of Charging Overheads
Total Overheads
Machine hour rate =
Total Machine hours
Calculation of Overhead cost per unit

Total Machine Hours 20,000 1,20,000
Machine Hour Rate 14.2 14.2
Total Overheads (TMH X MHR) 2,84,000 17,04,000
Actual Output (Units) 5000 60,000
Overhead rate per unit (TO/AO) 56.8 28.4
Activity based costing method of charging overheads :

Volume related cost

a) Volume related activity cost =
Total machine hours
Total Purchase related cost

b) Purchase related cost =
No. of purchase orders
Total setup related cost

c) Setup related cost =
No. of Set ups
ii) Calculation of overhead cost per unit:
a) Volume related activity cost at Rs 78,400 4,70,400
3.92 per machine hour
b) Purchase related cost at Rs. 1136 per
181763.20 436231.68
purchase order
c) Setup related cost at Rs. 12,812.5
256,250 563750
per setup
Total Overheads 516413.20 14,70,381.68
Annual output (Units) 5,000 60,000
Overhead rate per unit 103.28 24.5
3) XYZ Limited manufactures three products A, B and C. the following table includes information relating to the ma
Product Budgeted Output (Units) Material Cost Per unit (Rs)
A 6000 15
B 8500 24
C 4800 18
The draft production overhead budget for next year contains the following departmental budgets:
Machines Oriented Overheads 16500
Setup costs 38920
Material ordering 24630
Material Handling 32480
The budget absorbs these overheads into production using a budgeted machine hour rate method.
However it has been proposed that the overhead budget be recalculate using activity based costing. The following
Product No. of setups No. of material orders

A 1 1
B 4 3
C 2 2
a) Calculate the production overhead budget per product using traditional costing system.
b) Recalculate the production overhead budget per product using activity based costing, tracing
c) Comment briefly on the differences disclosed between overheads traced by the present syste
Total Overheads
Machine hour rate =
Total Machine hours
Calculation of Machine hrs

Product A 6000 X 0.25
Product B 8500 X 0.25
Product C 4800 X 0.25

Total Machine Hours 1,500 2125
Total Overheads (TMH X MHR) 34980 49555
Overhead cost per unit (TO/AO) 5.83 5.83

Calculation of cost driver rates :
Machine oriented O/H

a) Machine oriented overheads =
Total Machine hrs
Total setup cost

b) Setup cost =
No of setups
Material ordering cost

c) Material ordering cost =
No of material orders
Material Handling cost

c) Material Handling cost =
No of material handled
Calculation of overhead cost per unit:

Machine oriented overheads at Rs 3.42
(1500 * 3.42) = 5130 (2125 * 3.42) = 7267.5
per machine hour
Setup cost at Rs 5560 per setup (1 * 5560) = 5560 (4 * 5560) = 22240
Material ordering cost at Rs 4105 per
(1 * 4105) = 4105 (3 * 4105) = 12315
order
Material Handling cost at Rs 2030 per
(3 * 2030) = 6090 (10 * 2030) = 20300
time
Total Overheads 20885.00 62122.50
4) PQ Limited manufactures four products A, B,C and D using the same plant and process. The following informatio
Product Budgeted Output (Units) Material Cost Per unit (Rs)
A 500 3
B 5000 5
C 600 16
D 7000 7
The draft production overhead budget for next year contains the following departmental budgets:
Machines Oriented Overheads 37,425
Setup costs 4355
Material ordering 1920
Material Handling 7580
Administration for spare parts 8600
These overheads costas are absorbed by products on a machine hour rate method
However it has been proposed that the overhead budget be recalculate using activity based costing. The following
Product No. of setups No. of material orders

A 1 1
B 6 4
C 2 1
D 8 4
Total 17 10
a) Calculate the production overhead budget per product using traditional costing system.
b) Recalculate the production overhead budget per product using activity based costing, tracing
c) Comment briefly on the differences disclosed between overheads traced by the present syste
Total Overheads
Machine hour rate =
Total Machine hours
Product A 500 * 0.5

Product B 5000 * 0.25
Product C 600 * 1
Product D 7000 * 1.5
Total

Total Machine Hours 250 1250
Total Overheads (TMH X MHR) 1187.5 5937.5
Overhead cost per unit (TO/AO) 2.375 1.1875


a) Machine oriented overheads =
Total Machine hrs
Total setup cost

b) Setup cost =
No of setups
Material ordering cost

c) Material ordering cost =
No of material orders
Material Handling cost

d) Material Handling cost =
No of material handled
Administration of spare parts

e) Administration of spare parts =
No of spare parts

Machine oriented overheads at Rs 2.97 742.50 3712.5
per machine hour
Setup cost at Rs 256.17 per setup 256.17 1537.02
Material ordering cost at Rs 192 per 192.00 768.00
order
Material Handling cost at Rs 280.74 per
561.48 2807.4
time
Administration of spare parts cost at Rs
1433.32 3583.3
716.66 per spare parts
Annual output (Units) 500 5,000
5) A company currently manufacture and sold four products. The details of the four products and relevant informatio
Product A B
Output in units 120 100
Cost per unit:
Direct materials 40 50
Direct labour 28 21
Machine hours (per unit) 4 3
The four products are similar and are usually produced in production runs of 20 units and sold in batches of 10 u
The production overheads is currently absorbed by using a machine hour rate, and the total of the production over
Machine department costs 10,430
Production costs 5,250
Stores receiving cost 3,600
Inspection and quality control costs 2,100
Material handling and dispatch 4,620
You have ascertained the cost drivers to be used are as listed below for the overheads shown:
Cost Cost Drivers
Production costs No. of production runs
Stores receiving Requisition raised
Inspection of quality control No. of production runs
Material handling and dispatch Orders executed
The number of requisitions raised on the stores was 20 per each product and the number of order executed wa
You are required:

a) To calculate the total costs for each product if all overhead costs are absorbed on a machine hour b
b) To calculate the total costs for each product using activity based costing.
Total Overheads
Machine hour rate =
Total Machine hours
Product A 120 * 4
Product B 100 * 3
Product C 80 * 2
Product D 120 * 3
Total
Calculation of Total cost under Traditional Costing Method

Direct Materials (120 * 40) = 4800 (100 * 50) = 5000
Direct Labour (120 * 28) = 3360 (100 * 21) = 2100
Prime Cost 8160 7100
Add: Production Overheads at Rs 20 (480 * 20) = 9600 (300 * 20) = 6000
per Machine hour
Total Cost 17760 13100

Machine Department cost

a) Machine Department Cost =
Total Machine hrs
Production cost
b) Production cost =
No. of production runs
Stores receiving cost

c) Stores receiving cost =
No of requisition raised
d) Inspection and Quality control cost Inspection and Quality control

= No of production runs
Material handling and Dispatch

e) Material Handling and Dispatch =
No of orders executed
Calculation of total cost of production under ABC Method

Direct Materials (120 * 40) = 4800 (100 * 50) = 5000
Direct Wages (120 * 28) = 3360 (100 * 21) = 2100
Prime Cost 8160 7100
Add: Production Overheads

Machine department cost at Rs 8.02
3849.60 2406
per Machine hr
Production cost at Rs 250 per
1500.00 1250.00
production run
Stores receiving cost at Rs 45 per
900.00 900.00
requisition raised
Inspection at quality control at Rs 100
per production run 600.00 500
Material handling and dispatch at Rs

1,320 1100
110 per order
Total Cost 16329.60 13256.00
Product A B
Cost per unit:
Direct labour 10 9
Setup cost 20,000
Cost Cost Drivers
Setup cost No. of production runs
The number of requisitions raised on the stores was 50 per each product and the number of order executed was
Machine department cost has to be apportioned between setup cost, stores receiving and inspection activity in 4:3
Calculate CPU according to ABC and Traditional Costing Method
Total Overheads
Machine hour rate =
Total Machine hours
Product A 720 * 4
Product B 600 * 3
Product C 480 * 2
Product D 504 * 1
Total
Calculation of cost per unit under Traditional Costing Method

Direct Materials 30,240 27000
Direct Labour 7200 5400
Prime Cost 37,440 32,400
Add: Production Overheads at Rs 18 51840 32,400
per Machine hour
Total Cost 89,280 64,800
Outputs 720 600
Cost per unit 124 108
Calculation of Cost driver rates
a) Setup cost 63000 * 4/9 28000

b) Stores receiving 63000 * 3/9 21000
c) Inspection cost 63000 * 2/9 14000
Setup cost
a) Setup cost =

b) Stores receiving cost =
c) Inspection and Quality control cost Inspection and Quality control


d) Material Handling and Dispatch =

Direct Wages 7200 5400
Prime Cost 37,440 32,400

Setup cost at Rs 500 per production
15000.00 12500.00
run
9000.00 9000.00
requisition raised
Inspection at quality control at Rs 250
per production run 7500.00 6250

810 675
13.5 per order
Total Cost 69750.00 60825.00
Output 720 600
Cost per unit 96.875 101.375
7) Uma Limited makes 3 products using broadly the same production methods and equipment for each
A conventional product costing system is used at present although activity based costing system is being considere
Product Labour hrs per unit Machine hr per unit

P 0.5 1.5
Q 1.5 1
R 1 3
Direct labour cost Rs 6 per hour and production overheads are absorbed on machine hour basis. The rate for the
Further analysis shows that the total of the production overheads can be divided as follow.
Cost relating to setups 35%

Cost relating to machinery 20%
Cost relating to materials handling 15%
Cost relating to inspection 30%
Total production overheads 100%
Following activity volume are associated with the product line for the period as a whole
Total activities for the period:
No of movement of
Product No of set ups
materials
P 75 12
Q 115 21
R 480 87
Total 670 120
Calculate CPU according to ABC and Traditional costing method
Solution: Traditional Method
Product P 750 X 1.50

Product Q 1250 X 1
Product R 7000 X 3
Total Machine hrs
Calculation of Total Overheads

Total Overheads = Total Machine hrs X Machine hr rate
= 23375 X 28
Total Overheads = 6,54,500
Calculation of Overheads
a) Cost relating to setups 654500 X 35%

b) Cost relating to machinery 654500 X 20%
c) Cost relating to materials handling 654500 X 15%
d) Cost relating to inspection 654500 X 30%
Total overheads
Particulars Product P Product Q

Prime Cost 17,250 26,250
per Machine hour
Total Cost 48,750 61,250
Outputs 750 1250
Cost per unit 65 49
Setup cost
a) Setup cost =
No of setups
Cost relating to Machinery

b) Cost relating to Machinery =
No of Machine hrs
Cost related to Handling

c) Cost related to Materials Handling =
No of movement of materials
Inspection cost
d) Cost relating to Inspection =
No of Inspections
Calculation of cost per unit of production under ABC Method

Particulars Product P Product Q
Prime Cost 17,250 26,250

Cost relating to setup at Rs 341.90 per
25642.50 39318.50
setup
Cost relating toMachinery at Rs 5.60
6300.00 7000.00
per hr
Cost relating to Material Handling at

9817.5 17180.625
Rs 818.125 per movement of material
Cost relating to inspection at Rs 196.35

29,453 35343
per Inspection
Total Cost 88462.50 125092.13
Output 750 1250
Cost per unit 117.95 100.0737
8) The following particulars are extracted from the books of a manufacturing company Limited. Calculate overhead
Product Output (units) Machine hrs per unit

A 1,500 2
B 15,000 2
The overheads for the period is as follows

Machine oriented cost 2,20,000
Purchasing order cost 2,40,000
Set up cost 2,00,000
Total overheads 6,60,000
Total Overheads
Machine hour rate =
Total Machine hours
Product A 1500 * 2
Product B 15000 * 2
Total

Total Machine Hours 3,000 30000
Machine Hour Rate 20 20
Total Overheads (TMH X MHR) 60000 600000
Overhead cost per unit (TO/AO) 40 40


a) Machine oriented cost =
Total Machine hrs
Total setup cost

b) Setup cost =
No of setups
Purchase order cost

c) Purchase order cost =
No of purchase orders
Machine oriented costat Rs 6.67 per 20,010 200100
Machine hr
Setup cost at Rs 2000 per setup 80000.00 120000.00
Purchase order cost at Rs 1000 per
80000.00 160000.00
purchase order
Overhead rate per unit 120 32.006
Product A B
Cost per unit:
Direct labour 56 42
Setup cost 10,500
Cost Cost Drivers
Setup cost No. of production runs
The number of requisitions raised on the stores was 40 per each product and the number of order executed was
Total Overheads
Machine hour rate =
Total Machine hours

Product A 240 * 4
Product B 200 * 3
Product C 160 * 2
Product D 240 * 3
Total

Prime Cost 32,640 28,400
per Machine hour
Total Cost 51,840 40,400
Outputs 240 200
Machine oriented cost

a) Machine oriented cost =
Total Machine hrs
Setup cost
b) Setup cost =

c) Stores receiving cost =
d) Inspection and Quality control cost Inspection and Quality control


e) Material Handling and Dispatch =

Prime Cost 32,640 28,400
Maxhine oriented cost at Rs 8.02 per 7699.2 4812
Machine hr
Setup cost at Rs 500 per production 3000.00 2500.00
run
1800.00 1800.00
requisition raised
Inspection at quality control at Rs 200 1200.00 1000
per production run
2,640 2200
110 per order
Total Cost 48979.20 40712.00
Output 240 200
Cost per unit 204.08 203.56
10) A company manufactures three products and the details are as follows.
Product Annual output (units) Labour hrs per unit

X 20000 5
Y 30000 6
Z 50000 8
The breakups of the overheads based on the activities are given below
Setup cost 750000

Quality Inspection cost 450000
Production Order Cost 240000
Machine Expenses 1440000
Material Receipts 240000
NO of Machine setups No of quality inspections No of production orders

3000 10000 250
5000 7000 400
7000 8000 550

Calculate total cost of each product under traditional costing system of overhead absorption on Labour hr Basis
Total Overheads
Labour hour rate =
Total labour hours
Calculation of Labour hrs

Product X 20000 * 5
Product Y 30000 * 6
Product Z 50000 * 8
Total Labour hrs
Particulars Product X Product Y

Direct Materials 8,000,000 7500000
Prime Cost 10,000,000 11,100,000
Add: Production Overheads at Rs 4.588 458800 825,840
per labour hour
Total Cost 10,458,800 11,925,840
Outputs 20000 30000
Cost per unit 522.94 397.528
Setup cost
a) Setup cost =
No of Machine setups
Quality Inspection cost

b) Quality Inspection cost =
No of quality inspections
Production order cost

c) Production Order Cost =
No of production orders
Machine expenses
d) Machine Expenses =
No of Machine hrs
Material Receipts
e) Material Receipts =
No of Material Receipts
Calculation of cost per unit of production under ABC Method

Particulars Product X Product Y
Direct Materials 8,000,000 7500000
Direct Labour cost 2000000 3600000
Prime Cost 10,000,000 11,100,000

Setup cost at Rs 50 per Machine setup 150000 250000
Quality Inspection cost at Rs 18 per 180000.00 126000.00

Quality Inspection
Production order cost at Rs 200 per
50000.00 80000.00
production run
Machine expenses cost at Rs 6 per
300000.00 540000
Machine hr
Material Receipts at Rs 20 per Material 60,000 84000
Receipt
Total Cost 10740000.00 12180000.00
Output 20000 30000
er Activity Based Costing system for two products A and B.
Total
---
---
22,000
240
100
110000 Rs 5 per Machine

hour
2000 + 20000
120000
Rs 500 per
purchase order
80 + 160
210000
Rs 2100 per setup
40 + 60
Total no. of purchase orders Total no. of setups
160 20
384 44
5,50,000 + 8,20,000 + 6,18,000 Rs 14.2 per

20,000 + 1,20,000 Machine hour
5,50,000 Rs 3.92 per

20,000 + 1,20,000 Machine hour
6,18,000 Rs 1136.02 per

160 + 384 purchase order
8,20,000 Rs 12,812.50 per

setup
20 + 44
ation relating to the manufacture of each product.
Machine time per unit Labour cost per

Direct Labour per unit (Rs) (hours) unit (Rs)
0.25 0.25 2
0.4 0.25 2
0.4 0.25 4
d costing. The following information has been provided for this purpose:
No. of times materials handled

3
10
3
nal costing system.

ty based costing, tracing costs to products by cost drivers.
ced by the present system and those traced by activity based costing.
16500 + 38920 + 24630 + 32480 Rs. 23.32 per

1500 + 2125 +1200 Machine hr
1500
2125
1200
Product C
1200
23.32
27984
4800
5.83
16,500 16500
1500 + 2125 + 1200 4825
38,920 38,920
1+4+2 7
24630 24,630
1 + 3 +2 6
32,480 32,480
3 + 10 + 3 16
Product C
(1200 * 3.42) = 4104
(2 * 5560) = 11120
(2 * 4105) = 8210
(3 * 2030) = 6090
29524.00
4800
6.15
he following information relates to a production period

Machine time per unit Labour cost per
Direct Labour per unit (Rs)
(hours) unit (Rs)
0.25 0.5 3
0.5 0.25 3
2 1 12
1.5 1.5 9
d costing. The following information has been provided for this purpose:
No. of times materials handled No of spare parts

2 2
10 5
3 1
12 4
27 12
nal costing system.

ty based costing, tracing costs to products by cost drivers.
ced by the present system and those traced by activity based costing.
37425 + 4355 + 1920 + 7580 + 8600 59880

12600 12600
250
1250
600
10500
12600
Product C Product D
600 10500
4.75 4.75
2850 49875
600 7000
4.75 7.125
37,425 37425
250 + 1250 + 600 + 10500 12600
4,355 4,355
1 + 6 +2 + 8 17
1920 1920
1+4+1+4 10
7580 7580
2 + 10 + 3 + 12 27
8600 8600
2+5+1+4 12
Product C Product D
1782 31185
512.34 2049.36
192 768
842.22 3368.88
716.66 2866.64
4045.22 40237.88
600 7000
6.74203333333333 5.74826857142857
and relevant information are given below for a period:

C D
80 120
30 60
14 21
2 3
sold in batches of 10 units.
al of the production overhead for the period has been analysed as follows:
heads shown:
er of order executed was 42, each order being for a batch of a product.
bed on a machine hour basis.
10430 + 5250 + 3600 + 2100 + 4620 26000

480 + 300 + 160 + 360 1300
480
300
160
360
1300
Product C Product D
(80 * 30) = 2400 (120 * 60) = 7200
(80 * 14) = 1120 (120 * 21) = 2520
3520 9720
(160 * 20) = 3200 (360 * 20) = 7200
6720 16920
10,430 10,430
480 + 300 + 160 + 360 1300
5,250 5,250
6+5+4+6 21
3600 3600
20 + 20 + 20 + 20 80
2100 2100
6+5+4+6 21
4620 4620
12 + 10 + 8 + 12 42
Product C Product D
(80 * 30) = 2400 (120 * 60) = 7200
(80 * 14) = 1120 (120 * 21) = 2520
3520 9720
1283.2 2887.2
1000 1500
900 900
400 600
880 1320
7983.20 16927.20

C D
480 504
40 48
7 8
2 1
of order executed was 192, each order being for a batch of 12 products.
inspection activity in 4:3:2
63000 + 20000 + 15000 + 10000 + 2592 110592

2880 + 1800 + 960 + 504 6144
2880
1800
960
504
6144
Product C Product D
19200 24192
3360 4032
22,560 28,224
17280 9072
39,840 37,296
480 504
83 74
20000 + 28000 48,000
30 + 25 + 20 + 21 96
15000 + 21000 36000

50 + 50 + 50 + 50 200
10000 + 14000 24000

30 + 25 + 20 + 21 96
2592 2592
60 + 50 + 40 + 42 192
Product C Product D
19200 24192
3360 4032
22,560 28,224
10000 10500
9000 9000
5,000 5250
540 567
47100.00 53541.00
480 504
98.125 106.232142857143
ent for each

ystem is being considered. Details of three products for a typical period are :
Materials per unit Volume in units

20 750
12 1,250
25 7,000
r basis. The rate for the period is Rs 28 per machine hour.
Number of Inspection
150
180
670
1,000
1125
1250
21000
23375
229075
130900
98175
196350
654500
Product R
175000
42000
217,000
588000
805,000
7000
115
229075 229075
75 + 115 + 480 670
130900 130900
1125 + 1250 + 21000 23375
98175 98175
12 + 21 + 87 120
196350 196350
150 + 180 + 670 1000
Product R
175000
42000
217,000
164112
117600
71,177
131,555
701443.38
7000
100.206196428571
ted. Calculate overhead CPU
Direct labour per unit (hrs) No of purchase order No of setups

4 80 40
4 160 60
220000 + 240000 + 200000 Rs 20 per

33000 Machine hour
3000
30000
33000
220,000 220000
3000 + 30000 33000
200,000 200,000
40 + 60 100
240,000 240,000
80 + 160 240
C D
160 240
60 120
28 42
2 3

of order executed was 84, each order being for a batch of 10 products.
20860 + 10500 + 7200 + 4200 + 9240 52000

960 + 600 + 320 + 720 2600
960
600
320
720
2600
Product C Product D
9600 28800
4480 10080
14,080 38,880
6400 14400
20,480 53,280
160 240
128 222
20,860 20,860
960 + 600 + 320 + 720 2600
10,500 10,500
6+5+4+6 21
7200 7200
40 + 40 + 40 + 40 160
4200 4200
6+5+4+6 21
9240 9240
24 + 20 + 16 + 24 84
Product C Product D
9600 28800
4480 10080
14,080 38,880
2566.4 5774.4
2000 3000
1800 1800
800 1200
1,760 2640
23006.40 53294.40
160 240
143.79 222.06
Direct Material Per unit Direct Labour cost P U

400 100
250 120
300 160
Machine hrs worked No of material receipts

50000 3000
90000 4200
100000 4800
tion on Labour hr Basis
750000 + 450000 + 240000 + 1440000 +

240000 31,20,000
100000 + 180000 + 400000 680000

100000
180000
400000
680000
Product Z
15000000
8000000
23,000,000
1835200
24,835,200
50000
496.704
750000 750000
3000 + 5000 + 7000 15000
450000 450000
10000 + 7000 + 8000 25000
240000 240000
250 + 400 + 550 1200
1440000 1440000
50000 + 90000 + 100000 240000
240000 240000
3000 + 4200 + 4800 12000
Product Z
15000000
8000000
23,000,000
350000
144000
110000
600,000
96,000
24300000.00
50000
486
Rs. 3.42 per
Machine hr
Rs. 5560 per set up
Rs. 4105 per order
Rs. 2030 per

Material Handled
Rs. 4.75 per
Machine hr
Rs. 2.97 per
Machine hr
Rs. 256.17 per set

up
Rs. 192 per order
Rs. 280.74 per

Material Handled
Rs. 716.66 per

spare parts
Rs 20 per Machine
hr
Rs 8.02 per
Machine hr
Rs 250 per
production run
Rs 45 per
requisition raised
Rs 100 per
production run
Rs 110 per orders

executed
Rs 18 per Machine
hour
Rs 500 per
production run
Rs 180 per
requisition raised
Rs 250 per
production run
Rs 13.5 per orders

executed
Rs 341.90 per setup
Rs 5.6 per Machine

hr
Rs 818.125 per
movement of
material
Rs 196.35 per
Imspection
Rs 6.67 per
Machine hrs
Rs 2000 per Setup
Rs 1000 per
purchase order
Rs 20 per Macchine
hr
Rs 8.02 per
Machine hr
Rs 500 per
production run
Rs 45 per
requisition raised
Rs 200 per
production run
Rs 110 per Orders

executed
Rs 4.588 per
Labour hr
Rs 50 per Machine
setup
Rs 18 per quality
inspection
Rs 200 per
production order
Rs 6 per Machine
hr
Rs 20 per Material
Receipt

Cost Management Problems B 2

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Cost Management Problems B 2

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ABC COSTING PROBLEMS

Particulars Product A Product B

The total overhead cost of the activities has been as under:

Solution Activity based costing method of charging overheads :

Volume related cost

Total Purchase related cost

Total setup related cost

ii) Calculation of overhead cost per unit:

Product Annual output (units) Total machine hours

The annual overheads are as under:

Volume related activity costs 5,50,000

Solution: Traditional Method of Charging Overheads

Calculation of Overhead cost per unit

Particulars Product A Product B

Activity based costing method of charging overheads :

Volume related cost

Total Purchase related cost

Total setup related cost

Product Budgeted Output (Units) Material Cost Per unit (Rs)

Product No. of setups No. of material orders

Solution: Traditional Method of Charging Overheads

Calculation of Machine hrs

Calculation of Overhead cost per unit

Particulars Product A Product B

Activity based costing method of charging overheads :

Machine oriented O/H

Total setup cost

Material ordering cost

Material Handling cost

Calculation of overhead cost per unit:

Product No. of setups No. of material orders

Solution: Traditional Method of Charging Overheads

Calculation of Machine hrs

Product A 500 * 0.5

Calculation of Overhead cost per unit

Particulars Product A Product B

Activity based costing method of charging overheads :

Machine oriented O/H

Total setup cost

Material ordering cost

Material Handling cost

Administration of spare parts

Calculation of overhead cost per unit:

You are required:

Solution: Traditional Method of Charging Overheads

Calculation of Machine hrs

Calculation of Total cost under Traditional Costing Method

Particulars Product A Product B

Activity based costing method of charging overheads :

Machine Department cost

Stores receiving cost

d) Inspection and Quality control cost Inspection and Quality control

Material handling and Dispatch

Calculation of total cost of production under ABC Method

Add: Production Overheads

Material handling and dispatch at Rs

Calculate CPU according to ABC and Traditional Costing Method

Solution: Traditional Method of Charging Overheads

Calculation of Machine hrs

Calculation of cost per unit under Traditional Costing Method

Particulars Product A Product B

a) Setup cost 63000 * 4/9 28000