Peverell Handicrafts Ltd has estimated that the overhead cost of running the fin

Question

Peverell Handicrafts Ltd has estimated that the overhead cost of running the finished goods stores for next year will be pound£?270,000. This will be the amount allocated to the? 'finished goods stores cost? pool'. It is estimated that each Product 310T will spend an average of three weeks in the stores before being sold. With Product? 220B, the equivalent period is six weeks. Both products are of roughly similar size and have very similar storage needs. It is? felt, therefore, that the period spent in the stores? ('product weeks') is the cost driver. Next? year, it is expected that the business will produce? 80,000 Product 310T and? 20,000 Product 220B. Calculate the cost to be attached to each unit? of: 1. Product 310T 2. Product 220B that will pass through the finished goods store.? (Calculations in pound£s to nearest? pence.)

Explanation / Answer

Product 310T (product weeks) = 3 * 80000 = 240000

Product 220B (product weeks) = 6 * 20000 = 120000

Ratio of period occupied = Product 310T : Product 220B = 2 : 1

Cost allocated to Product 310T = 270000 *2 /3 = 180000 and per unit = 180000/80000 = £2.25 per unit

Cost allocated to Product 220B = 270000 * 1 /3 = 90000 and per unit = 180000/20000 = £9 per unit

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