b) TABLE 2 shows the cost drivers, the quantity and unit cost of the   cost driver, and total activity cost.   For two...

b) TABLE 2 shows the cost drivers, the quantity and unit cost of the

cost driver, and total activity cost.

For two products A and B it is found that:

• The direct labour hours for products A and B are the same.

• It takes approximately four times as many machining hours in

both cost centres to produce product B as product A.

• Product A requires one quarter of the materials purchased for B.

• Product A requires one third of the total Delivery

notes/invoices.

• Product A has issued one third of the total materials issued per

production run.

• Product A has issued one half of the planning per production

run of that required by Product B.

• Product B requires twice as many machine set-ups as product A.

• The products have the same number of quality control inspections.

If the company produces 50 000 each of products A and B:

(i) Complete TABLE 2 to determine the cost driver unit costings in

column 5 for the activities of column 1. Show also the product

quantity splits in column 4 of each activity for product A and B

(e.g. quantity of cost driver Activity Centre 1 is shown as split

100 000 product A and 400 000 product B).

(ii) Determine the overhead activity cost allocations to products A

and B (using the activity proportions calculated in column 4) by

completing TABLE 3.

(iii) Determine the total overhead allocations to products A and B.

(iv) Find the per unit product overhead cost allocations for each

product.