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Activity-Based Costing

LCCI Level 3 Cost & Management Questions & Answers

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59 views

Activity-Based Costing

LCCI Level 3 Cost & Management Questions & Answers

Uploaded by

Angela Zhang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
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Ro estion (1 5 Question (1) bee Phi ig Triple Products Ltd manufactures three products Hay, Bee and Cee. Atpresent the company uses a traditional co dtermon costing system to exis thecoxs of put . Budgeted production data for the next period is as follows: Production cat < ame. + HT Hay Bee Cee Production output (units)¢PPUS 1,000 800 400 Material per unitat$5 perkg Skg 10kg 7.5kg Labour per unitat $9 per hour hrs 2hrs Shr Machine ime per uit rgching bow hrs 1.Shrs 2hrs , acktnly ‘Variable production overheads are budgeted to be absorbed at $3.5 perlabour hour. Fixed production overheads forthe period are budgeted to be($66,000 absorbed on a machine hour basis ‘The company is considering the introduction of an. activity based costing system. Further investigation has revealed the following activities and related overhead costs: Activities Costs ($) ~ Product inspection 24,000 Machine set-up 16,000 Machine maintenance 12,000 Packing and d¥spatch 6,000 Material handling 8,000 - 66,000 Fixed Preduction overhead Other information: Cos} diver ie Budgeted orders for next period: Hay 10 orders; Bee and Cee 5 orders each. Each order is expected to require one machine set up and two inspections, 9 | oder 2. Machine maintenance is carried out regularly based on a predetermined number of machine running 3. __ Each products packed and despatched in crates containing the following numberof products per we crate: Hay 50 units, Bee 25 units and Cee $0 units. The numberof crates used influences product patch costs. je 4. Material handling costs are influenced by the quantity of material weed. Required (@) Calculate the production cost of one unt ofeach product using: @ Traditional absorption costing @) Activity based costing . i 16 marks) Explain the meaning of the term cost driver. Your explanation should include two earee illustrate your answer. (4 marks) (Total 20 marks) (2009 Series 3) ® “con production Cost Per Umit using Tiadioned Absouphion Cost Working, —freduction Overhead” toot Vevioble Pow <4, a por by " hive hove Son x Acting? Fixed POH 2,000 = 4 0x0 machine bw B: Ce L.Shy « BOO? 1 Roo = ching hour | C: ¢ 2hy S Boo COD eS =o 4,000 ar Hay | $ Be | $ | ce $ pret material Cott Per Unit 5kg*$5| 25 | tolgxgs| 50 |75lgx$5| 37.5 | pivect Labour Cost fer Unit 2h x$4] (8 | 2hrx$4| 18 | ain $9] 29 Pare Cort fer Unit. 43 68 64.5 Pwduchon Overhead POH cot per unit Variable ere 93 sy oh) |gasxBh| > [$35x3h| 10.5 Fixed $165 2h| 33-|$65x15H_ 2475] $6.5x2h|_ 33 83 AAS _[ tos ©). working, Cost Pew crviver ® Product inspection No. OF inspection 24 000 L Ht CW wrder x inspec? 20 90 negection PPP Bf 5 glow x 2 inspec? 10 =( $600 taspechow C! ¢ Sovdov x 2 Inspec’ to On eS < ? Q® rmachine set-up No. of set-up = _ $16,000 ‘od He <10 order » 1 machire > (0 20 sel-up po pert) g. C5 odor ® f mauine’ <5 = $2400 wachive c¢ C: C5 ody hive’ S Stes i meine). @® Machine maintenance No. of madaine roalattnants . $12,000 pew pend H: Caw x Bey fed a: 2000 4,000 hows por poriod @: Clk x goo) oni: ont 1280 rwoohine how | C1 < 2hyx Yond geo -@. Pe Sack 4,000 @ Facking & Dispatch No. CES no.cherede -'° ini porate eas 2 _$6,000 per period We <000 50 eek unis> 20 6 crates pr Pitcol | gs & so US ws? 3. $109 C2 <4 > Bp uns? 8 = OD per eb S ® materi Howdling Noo tralenal. used Guage? = _ $8,000 per Period Hi <5lg x 1,000? 5,000 $16,000 ug te Ponod B: Cost driver is any factor which cawes & Change in the cost_of on activity : : examples are ; Number of ins pections Number of machine hours NAY LIN AUNG MANGE & AGEOUNTANCY ACADEMY Question (2) Acompany uses a batch production method to manufacture its three products Hay, Bee and Cee. At present the company uses a traditional absorption costing system to establish the costs of production. Budgeted production data for the next period is as follows: Hay Bee Cee Production output (units) @pu 4,000 3,000 2,000 Production batch size(units) | Gach = 20 30 10 Machine time per batch hrs Shrs Shrs Material per batch at $15 per kg 20kg. 30kg 40kg Labour per batch at $12 per hour hrs 4hrs Shrs Variable production overheads are budgeted to be absorbed at$3.5) per labour hour, Fixed production overheads for the period are budgeted to 688,500) absorbed on a machine hour basis. ‘The company is considering the introduction of an activity based costing system. Further investigation has revealed the following activities and related overhead costs: Activities Costs (8) Product inspection 45,000 Machine set-up. 25,000 Machine maintenance 12,000 Product despatch \ 10,200 ‘Material handling 7,500 : ~y9,700 <— POH (VTE) ‘Other information: @ Orders budgeted: Hay 50 orders; Bee 30 orders and Cee 20 orders. Each order is expected to lordéy = | Setup ire one machine set u ; require one machine Setup. sett 10 Unirls = be 1 inspection (i) One product in every ten is inspected. Gi) Machine maintenance is carried out regularly based on a predetermined number of machine running hours. Oy) ‘Each product is packed and despatched inccrates containing the following number of products per crate: Hay 20 units, Bee 50 units and Cee 25 units. The number of crates used influences product despatch costs. usage 00 |B. CAS we = $29.5 ger mathinehor _)C Six ray yoo |. GED wo Bee | (CAD) PO wmit_ >I batch 4,000 units > Pbedels (@) “a unit > Nboteh = Booty: nits > 7 bacteh a pretty oo POH) 7 Venable felt Ie at L pbsorption $¥ije0 fired pow cS. = PARP T T ae Y i sep _emain_| Pigatck Fording | ABC done ze, ome, one aR (o> _Ackivity, basedl Cost Production \Cost Prime Cost pew batch 1 Prod OH Cost per bath. |.) 4 alk Ris | Preduct inspection Sex400| too | be x3o0! |, I5Q_| | SOx 260. D Ts = = = Mecthme Seb-up il. | 250x\50| 62.5 |.250.x30 Hd _|.250%20 By a) TES | 262 Moukine memterane |$4.x4b| 24 [ra xahr | 32 |¥tx she | 2° Precluc aésportil 30x20 | 30 | 30x60 18 |_30x¢0 1m ce 1 7S \ Material! Homdling | 05x20] 10 |osxakg] 15 fo,se aol 20 = ce 543-5] 783 99 823 Working | cbse dl iret ocd QD Preduct _inspectation no. of _incpectton = __$A5 oo Hi How +10% 400 ‘0 ep Bs. 3,000 +107 300 = $50_per inspection Cr. (2000+ b> 200 : 400 @_Mochine Stup_. No. of: set-up \ = $25; 200" : bh: C50 oder x1) 50 _ ly Jas too sup a PDB NS 80 err wy 30 = $750 per setup: lia, C21 C20 rte GID 2O CF. Oman wemerany - =" _$12,000 [ 3,000 mac hovy = $A per machine hour " product teat + | ino rerateass ee Ge |B: Gs00 5 458) 60 Ce <2,000 2257 Aeqoe —__) Oty ot eradertal ured - Administration 6,900 9 Rent 2,8 Gong mcs Other information ( Vehicle servicing is carried out regularly based ona predetermined number of kilometres completed. (i) Fuel costs are influenced by the numberofkilometers.completed._ : ii) Cleaning costs are influenced by the number of seats on the vehicles (iv) _ Vehicle insurance and depreciation are influenced by the purchase prige of the vehicles (¥) Road fund licence cosisare influenced by the number of vehicles in operation. (vi) Administration costs are influenced by the number of travelling passengers (vii) Rentis influenced by the number of parking bays required. Each vehicles(A)requites two bays for parking whereas each vehicld(B)nly requires one. Required Caculate the total budgeted average operational ostgettohice pa the period, for each type of vehicle, using: (a) Traditional absorption costing (marks) (b) Activity based costing (14marks) (Total 20 marks) @3) (0) Traditional Absorption Costing Cpewtinal Cost fer vehicle ype A $ Tee | F | Agency Driver Cost (Se?| S722 | Caejoor4?| 5,000 | Operational overhead Cost Ckefatt9l4o.5 ~ tom] gous 5557] $0.5x!2,52] 6,250 1b, 09 [| N.250 Worlding Operccttinal OH CAR no. of lw = $26,000 Bs 22,000 cae B Sinj500 4 Sa, ove $0.5 per km 72,000 bem Cb? Activity: based. Costing, Operational Cost fer vehicle Te A] $ [tee | $ Agency Driver Cost 5,200 5, 00D operational OH Cort met ‘ Sericing, 0.024 xiyer) 284 | 0.024 x12, 2 Fuel 0-2 XM] 2200] 0.2 x I2,500| 2, SoC _ cheng Nehile -raruxantc’ Su x 46 506 | $l x M4 154 ‘i eel vehicle insurorce $0.013xé0e00| 430 |$0,013x2qm0] 240 Rar Fund U'cence $IGOx | 150 | $150% \ \5b ——_—— -—— | depreciation foo. a pero] 1,600 | $0.015 3.2900] 500 _|_ Relministraction 0.954) BEL 2/100 FA75* Re) 675 ————__|__ T 3855 P| Rent Ke55.5xrkp | 1 (355.5) ae ao aly [eae Us teria 7 © sericing = $1328 92,000 lem =$ 0 024 © per km py @_puelz_ $ 14,400. 32,000 kim > $0.20 ger km | : 5 7 ® _ vehicle cleaning = $1,625 No. of seats HG sett Tas £46 #2 > q2 = BN per sak B: <4 x4 56 148 @ Vehicle insurance — _$ ee Rnchase_ Prive Of Vehicle AY $0,000 x2) (22 cco : : = $0.03 perp | 8: 5,600. 4/200 pascengars Br) che 4 vehidesry | 3, boo =_$e.3S per passenger at ale @ Peri to a | Now hing bay's. ss h2, 84g Ai ¢ alow gethrcto) 4 oe Be ( bey x 4 veils 4 = gz = _$ 355.50 gor gorkin boy pw Question (4) ‘Toral Henrikson Ltd uses absorption costing, based on a direct labour hour rate, to establish the production costs for the three products it manufactures ‘The budgeted details for the next period are as follows Product Exe Whye Zed Production (units) 3.000 2.500 2.000 Direct labour hours per unit 4 5 3 Direct materials (kg) per unit 5 4 3 Machine hours per unit 25 4 35 Production overheads for the period are($683 20 .d are absorbed on a direct labour hour basis. {@) Calculate, using absorption costing, the production overhead costs for one unit ofeach product. Give your answers to two decimal places 4) ‘The company is now considering using activity-based costing (ABC) to calculate the production overhead costs of each product. The following overhead information is available for the period: Activities Costs ($) Cost drivers 1 - Inspection 199 200 Number of production runs 2. Machining 186 600 Number of machine hours 3- Packaging 99.000 ‘Number of orders 4. Material handling 198 400 Quantity of material used «> Exe Whye Zed Number ofproductionnuns 150 200 250 ‘Number of orders 150 175 205 (©) Calculate, using activity-based costing, the producti oduction overhead costs for one unit of each product. Give your answers to two decimal places (10) (©) Evaluate whether the company should change to activity-based costing. @) (Total for Question = 22 marks) (Sept -2018) @4) ww Absorption Costing OAR x Aethaty per unity Precluction Overhead Costs for-one unit of exch procluct 1. Eve: 22-40 * 4hy = = $81.60 pee 2+ Whye: $22.40 x Shy7 = $112.00 3. Pech» S$22-40 X “Bhd =) $ 64.20 —— Fay POH CAR No. of sprvecd baum Pla = _.$683,200 Ex (4 br x 3,000 units7__ 12,000 poses W: <5 hb x 2,500 uniky (12500 = $22-40 per walk divect ghoul hour 21S Bh x 2,000 uni ww Activity-hayed Costing Precluction Qverhencl Costs fir one _untt of each product & Se Exe. Whye $s * Production OH cost pee unit, Tnspectim Ipaa2x ISD] 16.60 |$332x200| 26.56 | $332*250] 41.50 3,000} ‘2,0 Pu) WyoCO PU Machining, $3.62x25] 19.05 |pq02x4 [30-48 | $7.62x35 | 26.64 Packaging 180x150 | 4.00 |4180x 195] 12.60 | $ 180% 225] 20. 25 B,CRD 2) 500 | 3000 Moderiot Houndhi'ng $64x 5ig| 32.00 | $6.4x4la] 25.60 | $6.4 x3kg| 14-20 a : 36-65 98. 24 1op62 Ursrking Q Inspection = _$ 199, 200 No. of production runs feo ped ne Ei < given? 150 = $332 per production run |W: 6,000 7 3[,000 Cc) _hctivity-based costing uses a discreet usage basis which cos}s ave auorated. Preducts with more number of actives ave. charged wih _o grésder proportion of -Hne Overall cost. Prockyeks made in_smoller otehes eacrse costs more than’ products made in_lorger batcher, “Th addition, aetivty-pased costing [builds upa_mere veabistic ollocation ot costs, thus geld price caloulatbed goeuocbely -for spedfit produc, However, ik ts expensive and _yve-consuming te produce. Simarly, it 4 3 possibly diffioutt to Qombity tne cosh drivers. On the OHwer hand, absorption vestivg is not possible tho aU_costs ome able Jo retake. wits _hedbour, activty_and rnachine howrs. ‘Tn donelusion, tb would be _wppropriode fo tne Company +o dhange do aedivity~bared costing, Question (5) Farrel and Fletcher Ltd is in business making winding machines. It manufactures two, oducts, Exe and Whye, cach of which pass through two operations: cutting and forming. : Atpresent the company uses absorption costing, based on a machine hours rate, to establish the production ‘OAR = co v overhead casts eahine Kar The budgeted details for the next period are as follows: Product Exe Whye Production (units) 2500 2000 Total direct labour cost ($) 60.000 40 000 Total direct material cost ($) 50.000 80 000 Machine hours perunit 2.0 wr 15 be Batch sizg ¢\ batch, 20units 40 units Production overheads forthe petiod are(§176 0004nd are absorbed on a machine hours basis. (a) Calculate the production overhead costs (to two decimal places) for one unit of each product using absorption Costing. The company is now considering using activity based costing (ABC) to calculate the production overhead costs of each product. The following overhead and cost driver information is available for the period: Activity Cost Cost driver (8) Cutting 69 000 ‘Number of operations Forming 33.000 Number of operations Machine set-up 7000 Machine set-ups Inspection 45.000 Inspections ‘Material handling 22.000 Material requisitions Exe _____equgstjo_ Whye Cutting 12 operations per unit 8 operations per unit Forming 2operations per unit) 3 operations per unit Machine set-up \ Iperbatch 1 per batch Inspection \perunit_ 2perunit Material handling Both products are made from the same raw material thats issued in single sheets against a materials requisition. One sheet of material will make(20 unitsjof Exe and({6 unit of Whye, No wastage of materials is expected. (b) Calculate the total production overhead cost (to two decimal places) for one unit of Exe and one unit of Whye using activity based costing (12) He Explain two disadvantages the company might face if it decided to introduce activity based costing. @) * tee reaysition (Total for Question = 20 marks) sheet = (Dec -2018) | (27 _Absmetion Costivg » Procluction overhead tost for CLOAR x __Retivity per unit? te Bixee P22 ye hy = $44.00 4—Crdp> ZAAUNL am pio XL ay Je. $33 .004— dp» working POH OAR = PH<: 7 i 4 Pies No. of rroching hays 7 el ‘myo per unih_ x PU = Pv. how per period + ei s$\76 ,C00 Ee: <2 bv 2,500 units 5,900 ale casa WY: U1.5hy * 2,000 units) 3,000 = GD per mb 8,000. ae BAR Srckivty rit v POH cost -> AR aera mhy? | I , ) aR Ag OAR OAR oA ABC. Absorption costing Cb) _Activiny-based costing, a Procluckion_6) cost for one Unit 5 ton_ Overhead un : ae ; Li «| Production Overhead Cost Per Unit Cutting, $1.5 x12. |: 19.00 [$15 xB | 12-00 Forming $3 x2 6.00 | $3 x3 4.00 Tachineset-up $402 | 2-00 | $40=40 | 1.00 Tnspection BSx 2 10.00 | $5-x 2. 10.00 Maten'al hand ng $88 = on 4.40 | $38 = bun 5.50 |) 40.40 33.50 working @ Cutting Neo. & Operation = feo E: 12» A500unt) 30, 000 Fecal Wr: <2 x 200 uni) 16, 000 = _ $1-5 per opercetio 46 , 000 @ foaming No. of Operostion = $33,000 E: < 2% Z5c0unis> 5000 B 11,000: lon W: 3x 2,000unit> 6,000 = __ $3 per operation 000 (23) @ Machine set-up No. of bcksh — 6: <2,500 2 row) 125 135 batch Ww: <2,000= 40 unit? 50 = $40 per belch He G2 Pun D> P40 a 20 wih 7 I sheet 1 batth + $40 Wi 40 uni => Pow . 16 unckay 1 sheet @ Inspection. No. of inspection = __ $45,000 G1 <2 x 2, sco un? eee 4,000 Inspection Wg 2% 2,000 unity 4,000 = _ $5. per mspection 4000 ©_Matenal_Hanclbing No.of sheeb = $22,000, E 2 £2,500 units + oun? 12S 750 sheet W: ©2090 unity ~16 uni 12S. = $38 per sheet £50. BO) ap expensive and time-consuming te introduce. - Tis also Yecns teed the benefits obiained freer ABC system _cniglt “net justify tne cos. rdentihy ovpprpdake cost driver emi ead T_might_be defeat te since th wioht not pe posstble 4o allocate all Over a aes ee

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