Activity based costing - SOLUTIONS

Ex-01 Giga Incorporations

G-101 G-102 G-103
Cost per unit: --------------------- Rs. ---------------------
Paint cost 550.00 500.00 450.00
Attendant wages [Rs. 86 x 45/60] [Rs. 86 x 60/60] [Rs. 86 x 50/60] 64.50 86.00 71.67
FOH (W-1) 299.33 217.92 177.22
913.83 803.92 698.89

W-1 FOH allocation using activity based costing:

Cost pool Cost driver Total G-101 G-102 G-103
------------------------------ Rs. ----------------------------
Batches of
Paint stirring and QC 50,000 20,833 16,667 12,500
paint [10:8:6]
Coats of paint
Electricity 150,000 81,818 43,636 24,546
(W-2)
Litres of paint
Filling of spraying machines 90,000 47,015 26,866 16,119
(W-3)
[A] 149,666 87,169 53,165

Units sprayed [B] 500 400 300

OH cost per unit [Rs.] [A/B] 299.33 217.92 177.22

W-2 Coats of paint [i.e. units sprayed x coats per unit]

G-101 [500 x 6] 3,000
G-102 [400 x 4] 1,600
G-103 [300 x 3] 900
5,500

W-3 Litres of paint [i.e. units sprayed x litres per unit]

G-101 [500 x 7] 3,500
G-102 [400 x 5] 2,000
G-103 [300 x 4] 1,200
6,700
Activity based costing - SOLUTIONS

Ex-02 Rizwan Industries

Total FOH for R-11: Rs.

Purchasing cost [Rs. 750,000 x 25/15,000] 1,250
Setting cost [Rs. 1,120,000 x 150(W-1)/28,000] 6,000
Material handling cost [Rs. 960,000 x 900(W-2)/80,000] 10,800
Inspection cost [Rs. 700,000 x 150/28,000] 3,750
Machining cost [Rs. 1,500,000 x 1,500(W-3)/500,000] 4,500
26,300

Units 15,000

FOH cost per unit [26,300 / 15,000] 1.75

W-1
Number of batches for R-11 [15,000 / 100] 150

W-2
Number of material requisitions for R-11 [6 x 150(W-1)] 900

W-3
Machine hours for R-11 [0.1 x 15,000] 1,500
Activity based costing - SOLUTIONS

Ex-03 JAM Enterprises

Product J Product A Product M
--------------------- Rs. 000 ---------------------
Sales [sale price x units sold] 138,000 192,000 74,000
Prime cost [prime cost per unit x units sold] (93,000) (166,000) (64,000)
FOH (W-1) (22,158) (16,728) (10,068)
22,842 9,272 (68)

W-1 FOH allocation using activity based costing: Product J Product A Product M
---------------------- Rs. 000 --------------------
Machine services [Rs. 18.4m x Machine hours(W-2)/230,000] 6,000 8,800 3,600
Assembly services [Rs. 18.15m x Labor hours(W-3)/330,000] 12,375 3,850 1,925
Set-up costs [Rs. 1.2m x No. of set-ups/250] 336 480 384
Order processing [Rs. 7.2m x No. of customers orders/16,000] 2,160 2,025 3,015
Purchasing [Rs. 4.004m x No. of suppliers orders/5,600] 1,287 1,573 1,144
22,158 16,728 10,068

W-2 Machine hours

Product J [30,000 x 2.5] 75,000
Product A [20,000 x 5.5] 110,000
Product M [10,000 x 4.5] 45,000

W-3 Direct Labor hours

Product J [30,000 x 7.5] 225,000
Product A [20,000 x 3.5] 70,000
Product M [10,000 x 3.5] 35,000