9
(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.
Activity involved to Produce Product
Activity Centre 1
Machining
Activity Centre 2
Machining
Product Assembly
Materials
Procurement
Activities
Product Materials
Purchase
Product Material
Reception/Storage
Materials
Issued/Production Run
Support Activities
Production Run Planning
Machine Setting
Up/Tooling
Statistical Quality
Control
Total
TeessideUniversity Open Learning
(Engineering)
Allocated Cost
of Activity
£
750 000
500 000
400 000
600 000
240 000
225 000
150 000
30 000
10 000
11
Activity Cost Driver Machine Use hours Machine Use hours
Direct labour hours
Purchase Orders
Number of Invoices or Material Delivery
Notes Number of Production runs Number of Production runs Setting up/tooling labour hours Sample inspection and
Test Cost
TABLE 2
Quantity of Cost
Drivers
500 000
(100 000 prod A
400 000 prod B)
250 000
100 000
5000
3000
1500
1500
750
400
Cost Driver
Unit cost/rate per Cost
Activity Centre 1
Machining
Activity Centre 2
Machining
Product Assembly
Materials
Procurement
Activities
Product Materials
Purchase
Product Material
Reception/Storage
Materials
Issued/Production Run
Support Activities
Production Run Planning
Machine Setting
Up/Tooling
Statistical Quality
Control
Total
Activity
10 years ago
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