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Exercise 5 - Activity Based Costing

HPJ Government Hospital is inviting bids from eight companies (A to H) to produce four pharmaceutical products (P1-P4) that differ based on dose size and production volume. The document provides details on the products each company produces and the units produced. It also lists the material costs, direct labor costs, and total overhead costs for each company. Companies must select one product they represent, allocate overhead costs to each product using a method of their choice, calculate the cost per unit by adding materials, labor, and overhead, then add a 10% markup to determine their bid price per unit.

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Ankit Sahu
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51 views

Exercise 5 - Activity Based Costing

HPJ Government Hospital is inviting bids from eight companies (A to H) to produce four pharmaceutical products (P1-P4) that differ based on dose size and production volume. The document provides details on the products each company produces and the units produced. It also lists the material costs, direct labor costs, and total overhead costs for each company. Companies must select one product they represent, allocate overhead costs to each product using a method of their choice, calculate the cost per unit by adding materials, labor, and overhead, then add a 10% markup to determine their bid price per unit.

Uploaded by

Ankit Sahu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Exercises 5: Activity Based Costing (PART A)

HPJ Government Hospital is inviting a tender for four products (P1, P2, P3, and P4) from eight
companies (A to H). All products are produced on the same equipment using similar processes.
The products differ according to their physical Dose (large or small) and also according to their
production volumes (i.e. whether they are high-volume or low-volume products). Products
description is given below:
P1 = Small Dose and Low-Volume-Specialized Drug
P2 = Small Dose and High-Volume-Mass-Consumed Drug
P3 = Large Dose and Low-Volume-Specialized Drug
P4 = Large Dose and High-Volume-Mass-Consumed Drug
The products produced by the companies are given below:
Company
A
B
C
D
E
F
G
H

Products
P1, P2 and P3
P1 and P2
P2 and P3
P1 and P3
P1, P2 and P4
P1 and P4
P2 and P4
P2, P3 and P4

Units Produced
5, 50 and 10 respectively
5 and 50 units of P1 and P2
50 and 10 units of P2 and P3
5 and 10 units of P1 and P3
5, 50 and 100 units of P1, P2 and P4
5 units and 100 units of P1 and P4
50 units and 100 units of P1 and P4
50, 10 and 100 units of P2, P3 and P4

The quantity requirement of HPJ Govt. Hospital also matches with the above production figures.
The material cost for producing one unit of small Dosed product is Rs.12 and for large Dosed
unit, the material cost is Rs.18. Direct labour cost for small Dosed product is Rs. 10 and for large
Dosed product is Rs. 15. The overhead cost relating to material procurement, material handling,
supervision, machine related cost, etc., for the eight companies are as follows:
COMPANY
A
B
C
D
E
F
G
H

OVERHEAD FOR THE PERIOD


4684
3521
3783
2064
8761
6141
7860
9023

Required
You need to do the following:
1. First select a company you would like to represent. One company is adequate.
2. Using the product details of your company, material, labour and overhead cost related to
your company, find out the cost per unit. You need to allocate the overhead cost to
different products based on some logic of your choice.
3. Add 10% mark-up (dont use any other value), compute selling price per unit and submit
your bid in the form of Product, Quantity and bid price per unit.
Note: All figures in this exercise are in thousands and hence you can ignore the same.

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