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    Activity Based Costing - A Level - No MS

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    MUSTHARI KHAN

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    © All Rights Reserved
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    Activity Based Costing - A Level - No MS

    Uploaded by

    MUSTHARI KHAN
    10 views3 pages

    Original Title

    ACTIVITY BASED COSTING ---A LEVEL--NO MS

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    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
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    Download as docx, pdf, or txt
    10 views3 pages

    Activity Based Costing - A Level - No MS

    Uploaded by

    MUSTHARI KHAN

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    ANSWER THE FOLLOWING

    Ego Drone Inc. manufactures two models of “Selfie Drones”- small toy helicopters which follow users
    around taking aerial video while the user participates in extreme sports. Whether the user is rafting down a
    raging river, or renewing their life insurance, all activities can be documented by the products two models:
    SPORTS and PRO. The company will use activity-based costing to apply its estimated $350,000 of overhead
    costs to its products. Information about its overhead follows:

    Required:

    a.) Compute the activity rates for each activity.


    b.) Determine the expected unit cost of each product.

    2. You are in Hot Water Inc. manufactures Jacuzzi hot tubs. The company produces two models, the “Basic”
    and the “Superjet” which promises a jet power setting that “borders on cruel”. Since the introduction of the
    Superjet, the company’s profits have been faltering, despite increased sales. The company’s senior
    accountant believes that the costing system may be causing problems. The company uses direct-labour
    hours as the basis for applying overhead. Overhead is estimated to be $300,000.

    The following cost data is known:

    Basic Superjet

    Direct Materials $700 $1,200


    Direct Labour ($15 /hr) $60 $90
    Number of units Produced 600 units 100 units.

    The CFO wishes to explore an activity-based costing system.


    Required:

    a.) Under the traditional costing method:

    i. Compute the predetermined overhead rate.

    ii. Determine the unit cost of each product.

    b.) Under activity-based costing:

    i. Compute the activity rates for each activity.

    ii. Determine the expected unit cost of each product.

    c.) Compare and comment on your answers from parts a.) and b.) above.

    d.) If ABC produces more accurate cost data, why is it not more widely used?

    Required:

    a. Calculate the total manufacturing cost per unit for each of the two products assuming the company
    applies total manufacturing overhead using a single pre-determined rate based on direct labour hours.

    b. Now assume the company uses an activity-based costing system to apply total manufacturing overhead
    to the two products. Calculate:

    (i) activity rates for each activity and (ii) the total manufacturing overhead cost per unit for the Deluxe
    product.

    C. Briefly explain why the overhead cost per unit calculated in part a. above differs from the overhead cost
    per unit calculated in part b.

    d. For Port Royal Company, identify which of the five activity types best describes:

    MARKING SCHEME

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