Barking Mad Ltd makes two components for speakers using the same equipment simil

Question

Barking Mad Ltd makes two components for speakers using the same equipment similar processes. They recently conducted a review of costing procedures, based on the last month's accounts, but have found that the information they were given was flawed and revised figures have been submitted as follows. An extract for last month's production is shown below. and Product Woofer Product Growler Direct Material cost per unit Labour hours per unit Labour cost per Hour Machine hours per unit Production batch size (units) Total production and sales of units Number of production set-ups Orders handled during period Profit as percentage of sales price £30 2.0 £10.00 1.0 100 5,000 25 20 30% £40 1.0 £10.00 2.0 200 8,000 40 25 30%

Explanation / Answer

Question - a

Overhead absortion rate per direct labor hour = Total Overhead / Number of Labor hours

= 260200 / 18000 = 14.4556

Total Number of labor hours = 5000 Units * 2 + 8000 Units * 1 = 18000 hours

Explanation

(1) ..... Profit percentage is given as a percentage on selling price. But Cost per Unit is available for us. In such case, if selling price is assumed as 100 and 30 is profit in it. Then cost = 100 - 30 = 70. So when applying profit on cost, we take 30/70 on cost.

(2) ..... Direct material cost is obtained by multiplying per unit cost with number of units produced and sold in each case..... i.e 5000 units and 8000 Units

(3) ...... Labour cost = 5000 Units * 2 hours * 10 per hour = 100,000. Similarly for Grower = 8000 units * 1 hour * 10 per hour = 80,000

(4) ....... For Overheads ........ Woofer = 10000 Hours * 14.4556 = 144,556 and Grower = 8000 Hours * 14.4556 = 115644

Question - 2

Calculation of Activity cost rates

Calculation of Total sales and production cost ( ABC method)

Explanation:

Activity cost rates are used for mutiplying with the drivers used for each activity. For example: Finishing and despacthing had activity cost rate of 60 per order. So this is multiplied with 20 orders of Woofer and 25 orders of Growler to get 1200 and 1500 respectively. Same approach is used for all other activities.

Woofer Growler Direct materials 150000 320000 Direct labor cost 100000 80000 Overhead 144556 115644 Total Production cost 394556 515644 (+) Profit = 30/70 * Cost 169095 220990 Total sales 563651 736634 Selling price per Unit 112.73 92.08 Production cost per Unit 78.91 64.46

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