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Accounting question?

XXX ltd. has been in the furniture industry for five years. For its first four years (2012, 2013, 2014 and 2015) its sole product was Product 1, an armchair which has been awarded several design prizes. All Product 1 series were manufactured and packaged in-house. A normal costing system was used by the company. The two direct cost categories were direct materials and direct manufacturing labour. The sole indirect cost category (manufacturing overheads) was allocated to products using a unit of production allocation base. In the fifth year (2016), XXX ltd. added a second product (Product 2). Product 2 differs from Product 1 in three ways:

· more expensive raw material;

· more direct manufacturing labour;

· more complex manufacturing is required.

In 2016 XXX ltd. continued to use its existing costing system where each unit of production was weighted the same. Direct material costs were £0.60 per unit of Product 1, and £ 0.90 per unit of Product 2. Direct manufacturing labour costs in 2016 was £0.14 per unit of Product 1, and £0.20 per unit of Product 2.

During 2016 the company’s sales people reported greater than expected sales of Product 2 and less than expected sales of Product 1. The budgeted and actual sales volume for 2016 was as follows:

 

Product 1

Budgeted: 160,000

Actual: 120,000

Product 2

Budgeted: 40,000

Actual: 80,000

1 個解答

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  • 2 月前

    Continued...

    The budgeted manufacturing overhead for 2016 was £ 210,800.

    At the end of 2016, Steve, the Managerial Accountant of XXX ltd., decided to investigate the use of an activity based costing (ABC) system and how it might affect the product cost figures. After consultation with operating personnel, the single manufacturing overhead cost pool was subdivided into five activity areas. These areas, their driver, their 2016 budgeted rate and the driver units used per unit of production of each product are as follows:

     

    Activity 1

    Driver: labour time

    Budgeted 2016 cost per driver unit: 0.04 pound

    Driver units per Product 1: 5

    Driver units per Product 2: 8

    Activity 2

    Driver: machine time

    Budgeted 2016 cost per driver unit: 0.14 pound

    Driver units per Product 1: 2

    Driver units per Product 2: 3

    Activity 3

    Driver: labour time

    Budgeted 2016 cost per driver unit: 0.02 pound

    Driver units per Product 1: 3

    Driver units per Product 2: 5

    Activity 4

    Driver: machine time

    Budgeted 2016 cost per driver unit: 0.25 pound

    Driver units per Product 1: 0

    Driver units per Product 2: 3

    Activity 5

    Driver: machine time

    Budgeted 2016 cost per driver unit: 0.08 pound

    Driver units per Product 1: 3

    Driver units per Product 2: 7

     

    Questions:

    1. Calculate the 2016 unit product cost of Product 1 and Product 2 with the normal costing system used before 2016.

    2. Calculate the 2016 unit product cost for each of the products under the Activity Based Costing System.

    3. Explain the differences in unit product cost calculated under a) and b) above, describing the use the company might make of the Activity Based Costing figures.

    4. Briefly discuss the main advantages and disadvantages of an Activity Based Costing System

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