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    A company produces four versions of a product on an assembly line. Each version has different set-up costs. Using traditional costing, set-up costs are allocated equally to each product version. Using activity-based costing, set-up costs are allocated based on actual set-ups for each version. A company manufactures two products with different machine hours, purchase orders, and set-ups. Traditional costing allocates overheads based on direct labor hours. Activity-based costing allocates overheads based on cost drivers like machine hours and purchase orders. A company produces three products with different standard costs, labor hours, machine hours, purchase requisitions, and set-ups. Traditional

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    Combinepdf 2

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    A company produces four versions of a product on an assembly line. Each version has different set-up costs. Using traditional costing, set-up costs are allocated equally to each product version. Using activity-based costing, set-up costs are allocated based on actual set-ups for each version. A company manufactures two products with different machine hours, purchase orders, and set-ups. Traditional costing allocates overheads based on direct labor hours. Activity-based costing allocates overheads based on cost drivers like machine hours and purchase orders. A company produces three products with different standard costs, labor hours, machine hours, purchase requisitions, and set-ups. Traditional

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    A company produces four versions of a product on an assembly line. Each version has different set-up costs. Using traditional costing, set-up costs are allocated equally to each product version. Using activity-based costing, set-up costs are allocated based on actual set-ups for each version. A company manufactures two products with different machine hours, purchase orders, and set-ups. Traditional costing allocates overheads based on direct labor hours. Activity-based costing allocates overheads based on cost drivers like machine hours and purchase orders. A company produces three products with different standard costs, labor hours, machine hours, purchase requisitions, and set-ups. Traditional

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    72 views6 pages

    Combinepdf 2

    Uploaded by

    saisandeep
    A company produces four versions of a product on an assembly line. Each version has different set-up costs. Using traditional costing, set-up costs are allocated equally to each product version. Using activity-based costing, set-up costs are allocated based on actual set-ups for each version. A company manufactures two products with different machine hours, purchase orders, and set-ups. Traditional costing allocates overheads based on direct labor hours. Activity-based costing allocates overheads based on cost drivers like machine hours and purchase orders. A company produces three products with different standard costs, labor hours, machine hours, purchase requisitions, and set-ups. Traditional

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    A.\':.

    nvity Based Cost Management - Assignment XI


    Q.l X Ltc.\. prnc.\uces four versions (A, B, C and D) of the same product. Each version is
    a moc.\i.fo:.ati.on of the version A, the basic version of the product. A particular assembly
    \\ne can produce a\\ the four varieties of the product. The assembly line can produce
    \() ,()()() uni.ts of the same version of the product at a time. The set-up cost is Rs . 10,000
    per set-up. On the basis of the pattern of market demand, X Ltd. produces 10,000 units of
    A, 5,000 units of B, '2,500 uni.ts of C, and 1,000 units of D. Determine set up costs to
    charged to the different versions A, B, C and D using:
    (a) Traditional method of charging overheads.
    (b) Activity-based costing method

    company manuf:actunng two products fumishes the following data for a vear:
    ·- Annual Output Total Machine Total Number of Total Number
    Product (Units) Hours Purchase Orders of Setups
    A S,000 20,000 \60 20
    B 60 ,000 120,000 384 44
    The annual overheads are as under:
    Volume-related activity costs Rs. 5,50,000
    Set-up-related costs Rs. 8,20,000
    Purchase-related costs Rs. 6,18,000
    You are required to calculate the cost per unit of each product A and B based on
    (c) Traditional method of charging overheads.
    (d) Activity-based costing method

    Q.3 A company produces three products A, B and C for which the standard costs aii.d
    0 ows:
    quantities per umt. are as fdl
    Products A B C
    10,000 20,000 30,000
    Quantity prod uced
    Direct material/p .u. (RsJ so 40 30
    Direct labour/o. u. (Rs. ) 30 40 so
    3 4 s
    Labour hours/p.u. 7
    4 4
    Machine hours/p .u. 2,000
    1,800
    1,200
    No. of purchase requisitions 300
    240 260
    No. of set ups ment l Rs.
    Production overhead split by departments - Drie;~ment 2 =
    . b .. tensive and Department 2 is machine intensive
    Department l 1s 1a our m _ 000
    Total labour hours in Department 1 - :_'~03, 0 000
    . h sin Department 2 - -' , , Rs. 13,50,000
    Total mac h me our f •t Receiving/inspecting
    Production overhead split by dac It~' y s-cheduling/machine set up Rs. 12,00,000
    - Pro uc 10n Rs. 25,50,000

    · dt ected = 5,000
    Nmnber of batches rece1vhe drnl~pg and set-up = 800
    . f batches for sc e u in
    Num b e1 o
    You are required to:
    (i) Prepare Product Cost Statement under traditional absorption costing and Activity
    Based Costing method.
    (ii) Compare the results under two methods.

    Q.4 The following information provides details of costs, volume & cost drivers for a
    parf,cu Iar perto
    . d .m respect o f ABC Ltd. tior oro d uct X Y an d Z
    Product X ' Y
    Product Product Z Total
    I. Production and sales (units) 30,000 20,000 8,000
    2. Raw material usage (units) 5 5 11
    3. Direct material cost (Rs. 25 20 11 12,38,000
    4. Direct labour hours 1½ 2 I 88,000
    5 Machine hours 1½ 1 2 76,000
    6. Direct labour cost (Rs.) 8 12 6
    7. Number of production runs 3 7 20 30
    8. Number of deliveries 9 3 20 32
    9. Number of receipts (2x7)* 15 35 220 270
    10. Number of production orders 15 10 25 50
    11. Overhead costs:
    Set-up Rs. 30,000
    Machines Rs. 7,60,000
    Receiving Rs. 4,35,000
    Packing Rs. 2,50,000
    Engineering Rs. 3,73,000
    Total Rs. 18,48,000
    * The company operates a JUSt-m-ttme inventory policy and receives each component once per
    production run.
    In the past, the company has allocated overheads to products on the basis of direct labour
    hours. However, the majority of overheads are related to machine hours rather than direct
    labour hours. The company has recently redesigned its cost system by recovering
    overheads using two volume related bases: machine hours and a materials handling
    overhead rate for recovering overheads of the receiving department. Both the current and
    the previous cost system reported low profit margins for product X, which is the
    company's highest-selling product. The management accountant has recently attended a
    conference on activity-based costing, and the overhead costs for the last period have been
    analyzed by the major activities in order to compute activity-based costs.
    From the above information, you are required to:
    (a) Compute the product costs using a traditional volume-related costing system based on
    the assumption that:
    (i) All overheads are recovered on the basis of direct labour hours (i.e. the company's
    past product costing system);
    (ii) The overheads of the receiving department are recovered by a materials handling
    overhead rate and the remaining overheads are recovered using a machine hour rate
    (i.e. the company current costing system).
    (b) Compute product costs using an activity-based costing system.

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