1.Complying with regulations is a(n) (Points : 5) 1. batch-level activity. 2. pr
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Question
1.Complying with regulations is a(n) (Points : 5)
1. batch-level activity.
2. product-level activity.
3. unit-level activity.
4. organization sustaining activity
.
(TCO F) The following overhead data are for a department of a large company.
Actual Costs Incurred
Static Budget
Activity level (in units)
500
450
Variable costs:
Indirect materials
$5,950
$5,382
Electricity
$1,112
$1,008
Fixed costs:
Administration
$2,770
$2,800
Rent
$5,120
$5,100
Required: Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department.
3.TCO H) Hanson, Inc. makes 10,000 units per year of a part called a prositron for use in one of its products. Data concerning the unit production costs of the prositron follow.
Direct materials $250
Direct labor 125
Variable manufacturing OH 50
Fixed manufacturing OH 150
Total $575
An outside supplier has offered to sell Hanson, Inc. all of the prositrons it requires. If Hanson, Inc. decided to discontinue making the prositrons, 20% of the above fixed manufacturing overhead costs could be avoided.
Required: Assume Hanson, Inc. has no alternative use for the facilities presently devoted to production of the prositrons. If the outside supplier offers to sell the prositrons for $425 each, should Hanson, Inc. accept the offer? Fully support your answer with appropriate calculations
Actual Costs Incurred
Static Budget
Activity level (in units)
500
450
Variable costs:
Indirect materials
$5,950
$5,382
Electricity
$1,112
$1,008
Fixed costs:
Administration
$2,770
$2,800
Rent
$5,120
$5,100
Explanation / Answer
Answer 1.
In modern times , many companies has adopted a method of allocation of the cost i.e. ABC costing system ( Activity based costing ). in this costing system , the manufacturing process will be divided into various steps or activities and on the basis of these steps or activites the fixed or variable cost are allocated.each overhead cost is assigned to a category of the csot and these cost catagory is known as activity cost pool. cost drivers are the actual activity that cause a total cost in an activity cost pool to increse . for example :- Number of times materials are orders , number of production lines , number of the shipment send to the customer etc. In these type of the costing the rate per unit is calculated by using the following formula :-
cost per unit = Totol cost incurred in an activity / no. of unit
To assign the overhead cost more accurately the ABC costing assigns in following category :-
A) BATCH LEVEL ACTIVITY :- The cost incurred everytime a batch is processed . For example - purchase order , manchine setup , quality test .
B) PRODUCT LEVEL ACIVITY - these are those acitivities that supports the whole product line . example - Engineering changes made in the assembly lines , warehousing and storage cost.
C) UNIT LEVEL ACTIVITY - OCCUR EVERY TIME A SERVICE is performed or a product is made.exam - direct labour , direct raw material .
d) ORGANISATIN SUSTANABITITY ACTIVITY - Those activity that are used to correct the ineffectiveness of the managerial procedure which in turn lead to the increase in the sustanbility of the organisation .
ANSWER 2
FLEXIBLE ACTIVITY PERFORMANCE REPORT
PARTICULARS ACTUAL BUDGET 111% OF BUDGET FLEXIBLE BUDGET VARIANCE
UNITS 500 450
INDIRECT MATERIAL 5950 5382 5972 22 (favourable)
ELECTICITY 1112 1008 1118 6 (favourable)
ADMINISTRATION 2770 2800 2800 30 (favourable)
RENT 5120 5100 5100 20 (unfavourable)
Answer 3:-
Actual cost of producing 10000 units $575
If hanson purchase the same from outside supplier it will incure following cost = purchase price + 80% of the fixed manufacturing overhead cost which comes to $ 425 + $120 (80% of 150) = 545
actual saving = $575- $545 = $ 30
Hanson Inc should go ahead with the purchase of the prositrons from outside supplier which will result in saving of $ 30.
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