Activity Based Costing Question No.5 (with answer)
A company manufactures two products, X and Y, using the same equipment and similar processes. Data for the production of these items in one period is shown below:
Data:
| Quantity produced per period |
X
|
Y
|
|
| Material cost per unit |
20,000
|
10,000
|
|
| Direct labor hours per unit |
|
$20
|
|
| Machine hours per unit |
|
½
|
|
| Set-ups per period |
|
4
|
|
| Orders handled per period |
|
70
|
|
| Cost per direct labor hour |
|
160
|
|
|
|
|
|
| Overhead costs |
|
|
$
|
| Relating to machine activity |
|
|
300,00
|
| Relating to set-ups of production runs |
|
|
50,000
|
| Relating to handling of orders |
|
|
70,000
|
Question: Using activity-based costing, what is the full production cost per unit X? |
|
Answer:
|
|
$
|
$
|
| a |
Machine hour driven costs |
300,000/80,000 m/c hr |
3.75 |
| b |
Set-up driven costs |
50,000/100 set ups |
500 per set up |
| c |
Order driven costs |
70,000/200 orders |
350 per order |
| Overhead costs of X |
$
|
| Machine driven costs(40,000x$3.75) |
150,000
|
| Set-ups(30 x$500) |
15,000
|
| Orders handled(40x$350) |
14,000
|
|
179,000
|
|
|
| Units produced |
20,000
|
| Overhead cost per unit |
$8.95
|
| Full cost per unit ($5+$4+$8.95) |
$17.95
|
|
FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four, Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.
Also author to another very popular free educational accounting cum finance blog: http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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