[Solution]Managerial Accounting, Activity Based Costing and Traditional Costing System

ABC Corporation makes three types of products and currently uses traditional product costing system.  The management is considering using activity based costing. Below is the…

ABC Corporation makes three types of products and currently uses traditional product costing system.  The management is considering using activity based costing. Below is the details on the tree products
 
 

Products
Labor hour per unit
Machine hours per unit
Material cost per unit  SR
Volume of productions
(Units)

Product A
1.5
0.5
20
1,000

Product B
1
1.5
25
5,000

Product C
0.5
1.0
30
1,500

Total manufacturing overhead are SR 750,000. In- depth analysis for overheads has been done to apply activity based costing as follows:

Activities
Activity’s Overheads cost pool

Set- ups
150,000

Machinery
200,000

Material handling
125,000

Inspection
275,000

Total
750,000

 
The actual quantity used of activities by products as follows:

Products
Set- ups
Machinery (hours)
Material handling
Inspection

Product A
100
500
15
20

Product B
120
7,500
30
150

Product C
300
1,500
90
700

Total
520
9,500
135
870

 
Direct labor rate is SR 5 per hour and overhead allocated to products under traditional costing system using machine hour as allocation base.
Required:

Calculate cost per unit per each product under traditional costing system.
Calculate cost per unit per each product under activity based costing.
Comment on results.

 
 

In 2020, ABC Company produces a single product with the following information: (2.5 marks)

Variable cost per unit:
SR

Direct martial PER UNIT
8

Direct labor per unit
10

Manufacturing over head
5

Variable selling expense per units sold
2

 

Additional information:
SR

Fixed  manufacturing costs per year
150,000

Fixed  selling and administrating expenses per year
150,000

Number of units produced
20,000

Selling price per unit
50

Required:

Prepare income statement using absorption costing and variable costing assuming all 20,000 units sold.
Prepare income statement using absorption costing and variable costing assuming all 15,000 units sold and 5,000 units unsold.
Comment on results explaining which costing method produces more profit in case of inventory.

Answer:
 

Assignment status: Solved by our experts

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