Page 1 of 5
I – PLEASE
READ THEM CAREFULLY
The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Page 2 of 5
Q1 Give example of company using ABC costing and explain the process used in this company to
assign costs in an ABC system? (Week 7: Chapter 7, ABC costing)
Answer:
SCHNEIDER INC.
Schneider Company follows ABC costing method as it fits well with their business. The following
steps are taken in the company to allocate costs in the system.
1. Activities classification
In this step, all their daily activities are classified into respective points that consume
resources. An example, purchasing raw materials is an activity.
2. Identification of cost drivers
Cost drivers are activities that cause costs to be incurred. The number of orders in the
company are classified as cost drivers in the purchases department.
3. The cost allocation rate per unit (POHR) of the drive is then calculated.
𝑃𝑟𝑒𝑑𝑒𝑡𝑒𝑟𝑚𝑖𝑛𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑎𝑡𝑒 (𝑃𝑂𝐻𝑅)=𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑
𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
4. The cost driver's allocation is then calculated by multiplying the cost driver rate per order by
the total total-volume of cost driver units that were consumed by the product identified in
step 2.
Q 2 Give examples of questions managers could ask to help them identify relevant qualitative
factors that will be used before making decision? (Week 9: Chapter 4, Relevant information for
Page 3 of 5
decision making)
Answer:
a) How many customers do we serve in a day?
That helps the managers to know how to approach marketing strategies to meet customer's needs
(Labro, 2019).
b) Among the variety of products we sell, which product is most liked by customers, and why?
By asking that question, managers are concerned about how to better their products' quality to their
customers.
c) What is our production capacity per day?
Managers need information about their daily performance to ensure they can reach capacity before
accepting a contract.
When managers want to outsource a production process, the following questions are necessary.
d) Is the new producer who will be making the product reliable and financially stable?
e) Will our production employees be negatively affected by the shutdown of our manufacturing
facility?
f) Will the new producer maintain quality as it was before?
Q 3 Kadhim Co. manufactures product B, which is a part of its main product. Kadhim Co makes
50,000 units of product B per year. The production costs are detailed below. An outside supplier has
offered to supply 50,000 units of product B per year at $ 2.45 each. Fixed production cost of $
40,000 associated with the product B are unavoidable. Should Kadhim Co make or buy the product
B?
Page 4 of 5
The production cost per unit for manufacturing a unit of product B are:
Direct Materials
0.85
Direct Labor
0.65
Variable Manufacturing Overhead
0.40
(Week 9: Chapter 4, Relevant information for decision making)
Answer:
Computation of production cost
Direct Materials 0.85
Direct Labour 0.65
Variable manufacturing Overhead 0.4
Total cost per unit 1.9
Total cost for 50,000 units 95,000.00
Purchase cost per unit 2.45$
Cost for 50,000 units 122,500.00$
Statement of cost of production
The total cost of producing product B is less than the purchasing price. Kadhim Co should make the
product.
Page 5 of 5
Reference
Labro, E. (2019). Costing systems. Foundations and Trends in Accounting, 3-4.
