MI – May 2016 – L1 – SB – Q6b – Costing Methods

Application of Activity-Based Costing (ABC) to allocate overhead costs and calculate cost per unit for products X, Y, and Z.

Question

Quick Company Limited manufactures three products X, Y, and Z. Production and related costs have been budgeted for a period as follows:

PRODUCT	X	Y	Z
No. of Units	40,000	30,000	10,000
Direct Materials	600,000	300,000	160,000
Direct Labour	400,000	150,000	200,000
Machine hours	10,000	6,000	4,000

Overhead costs:

The following activities related to the product line have been budgeted for the period:

PRODUCT	X	Y	Z	Total
Number of purchases	20	30	50	100
Number of stores requisitions	100	80	60	240
Number of set ups	80	140	180	400
Number of movements of materials	120	36	20	176
Number of inspections	336	90	74	500

Required:
Calculate the cost per unit for each product using the Activity-Based Costing (ABC) system.

Answer

Cost per unit for each product using ABC system