Lincoln University

Faculty of Management

A PROJECT REPORT ON

ABC Costing of Mama Bhanja Manufacturing Company

By:

Asmita Khanal

A Report submitted in partial fulfillment of the requirement for the degree of

Masters of Business Administration (MBA)

At the

Green Peace Lincoln College

Faculty of Management

Lincoln University

December 2023
 Mama Bhanja manufacturing company manufactures four products i.e. W, X, Y, Z
using the same plant and process. The following information relates to the product for
a period:

Raw
Machine
Volume Material per Material Labour cost
hours per
Products (Output unit of cost per sq. per unit of
unit of
Units) output in sq. m. (Rs.) output (Rs.)
output
m.
W 200 10 2 25 8
X 500 6 1.5 16 12
Y 700 4 2.5 30 6
Z 1,000 5 4 24 16

The production overhead and cost drivers are: -

Cost Pool Cost Drivers Rs.

Machine expenses Machines hours 180,700
Set ups cost No. of production runs 168,000
Stores receiving cost No. of requisition raised 50,000
Inspection cost No. of production runs 96,000
Material handling cost No. of orders executed 57,600
Total 552,300

Additional Information: -

i. The four products were produced in a production run of 50 units each.

ii. The number of requisitions raised from the stores for each product was 25
times.
iii. The no. of orders being in a batch 200 sq. m. for each product and total
number of orders executed was 64.

Required: Statement of cost and total cost per unit for each product by using:

(a) Conventional absorption costing on the basis of machine hour rate.

(b) An activity based costing using suitable cost drivers
Solution,

Under Traditional Approach

Step-1: Calculation of total overhead

Machine expenses: 1,80,700

Set up cost: 1,68,000

Stores receiving cost:50,000

Inspection cost: 96,000

Material handling cost: 57,600

Total: Rs 5,52,300

Step-2: Determine the base

Here, the base is used in machine hour (MH)

Step-3: Calculation of total base

Product W: 200 x 8= 1,600

Product X: 500 x 12= 6,000

Product Y: 700 x 6= 4,200

Product Z: 1000 x 16= 16,000

Total MH= 27,800

Step-4: calculation of overhead (OH) rate

Overhead rate = Total Overhead

Total Base

1
 = 5,52,300

27,800

= 19.86690647482

Step-5: Allocation of overhead (OH rate x Base)

Product W: 19.86690647482 x 1,600= 31,787

Product X: 19.86690647482 x 6,000= 1,19,201

Product Y: 19.86690647482 x 4,200= 83,441

Product Z: 19.86690647482 x 16,000= 3,17,871

Total overhead = 5,52,300

Statement of cost

under Traditional Approach (Rs……)

W X Y Z
Particular
Direct 4,000 4,500 7,000 20,000
Material
Direct 50,000 48,000 84,000 1,20,000
Labor
Prime 54,000 52,500 91,000 1,40,000
Cost
Add: OH 31,787 1,19,201 83,441 3,17,871

Total cost 85,787 1,71,701 1,74,441 4,57,871

Cost per 85,787/200= 1,71,701/500= 1,74,441/700=249. 4,57,871/1000=
unit 428.935 343.402 201 457.871
CPU= Total
cost/ output

2
 Under Activity Based Costing Approach

OH cost Cost Base Cost Total Cost W X Y Z

pool Driver Cost Driver Driver
Rate
Machine 1,80,700 Machine 27,800 6.5 10,400 39,000 27,300 104,000
expenses Hour
Setup 1,68,000 No of 4+10+ 3,500 14,000 35,000 49,000 70,000
Cost production 14+20=48
run
Store 50,000 No of 8+20+28+40 520.83 4166.64 10416.6 14583.24 20833.2
receiving requisition =96
cost raised
96,000 No of 8+20+28+40 2000 8000 20,000 28,000 40,000
Inspection production =96
cost
57,600 No of 10+15+14+ 900 9000 13500 12600 22500
Material orders 25=64
handling executed
cost

3
 Statement of cost

Under ABC Approach

Particulars W X Y Z
Prime Cost 54000 52500 91000 140000
Add: Overheads
Machine expenses 10,400 39,000 27,300 104,000
Set ups cost 14,000 35,000 49,000 70,000
Stores receiving cost 4166.64 10416.6 14583.24 20833.2
Inspection cost 8,000 20,000 28,000 40,000
Material handling cost 9,000 13,500 12,600 22,500
Total Cost 99,566.64 170,416.6 222,483.24 397,333.2
Cost Per Unit 497.83 340.83 317.83 397.33