Refer to Accounting Test Question No.ABC2
 

(a) Computation of the activity based overheads
Step 1: Compute cost per unit of cost driver
= Cost pool / cost driver volume

Activity

Cost pool (a)

Cost driver volume/yr (b)

Cost/unit of cost driver (a)/(b)

Purchasing

$75,000

1,500

$50/purchase order

Setting

$112,000

2,800

$40/batch

Materials handling

96,000

8,000

$12/movement

Inspection

$70,000

2,800

$25/batch

Machining

$150,000

50,000

$3/machine hour

Step 2: Compute the volume of cost drivers consumed by Product XX

Purchase orders (given) =25

Batches=15,000/100=150

Materials movement=150 batches […]

Company XYZ has 6 standard products from stainless steel and brass.
The company’s most popular product is Product XX

 
 
 
The following are Product XX’s data for next year budget:
 
 
 
 
 
 
 
 
 

Activity
Cost Driver
Cost driver volume/yr
Cost pool

Purchasing
Purchase orders
1,500
$75,000

Setting
Batches produced
2,800
$112,000

Materials handling

Materials movements

8,000

$96,000

Inspection

Batches produced

2,800

$70,000

Machining costs
Machine hours
50,000
$150,000

Purchase orders
25

Output
15,000 units

Production batch size
100 units

Materials movements per batch
6

Machine hours per unit
0.1

Required:
(a) Calculate the budgeted overhead costs using […]

Refer to Accounting Test Question No.1
 
(a) Computation of the activity based costs and profits for each contract.
Step 1: Compute cost per unit of cost driver
= Cost pool / cost driver volume

Activity

Cost pool (a)

Cost driver volume/yr […]

Company XYZ has 2 fixed price contract for 2 different customers.
The company has enough capacity for both contracts but
is uncertain whether they will be profitable.
 
 
 
 
Data as follows:

 
Customer

AAA

BBB

Component Type

A999

B999

Contract Value($)

$27,000

$100,000

Contract Quantity

1,000unit

2,000units

Material cost/unit

$15

$20

Moulding time/batch

5hours

7.5hours

Batch Size

100units

50units

[…]

Unlike other traditional costing systems, one of the importance of activity based costing is to determine the “true” cost for a cost object which is a product, service or customer
Why is then the  necessity to know the “true” cost of a product?
Some of the reasons includes the following:

To identify money makers/money losers;
To finding an economic […]