Cost Drivers – Knowsia

MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector

Assessment of ABC's applicability in the service sector and identification of four units in healthcare where it can be applied.

Question

In their effort to build equitable, resilient, and sustainable systems for health, both The Global Fund and Gavi have approached you on the implementation of ABC systems to improve their customer profitability analysis.

Required:

Assess the applicability of Activity-Based Costing (ABC) in the services sector. In explaining your answer, identify four units in the healthcare sector where ABC systems are applicable and specify an appropriate cost driver for each.

Answer

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Tags: Activity-Based Costing, Cost Control, Cost Drivers, Healthcare, Service Sector
Level: Level 2

Topic: Activity-based costing
Series: Nov 2024

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

Question

Sadet Nigeria Limited assembles three types of motorcycles at the same factory: the 50cc Prelude, the 100cc Roadmaster, and the 150cc Roadstar. Sadet has invested in manufacturing technology to reduce labor costs in response to market demands.

Historically, Sadet used direct labor hours to allocate overhead costs. Now, they are considering activity-based costing (ABC).

Motorcycle Data:

Requirements:

a. Calculate the total profit for each of Sadet’s three motorcycle types, using:

i. The existing overhead allocation method based on labor hours.
ii. Activity-Based Costing (ABC).
(14 Marks)

b. Write a report for Sadet’s directors as a Management Accountant, evaluating the labor hours versus activity-based costing methods in Sadet’s circumstances.
(6 Marks)

Answer

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Tags: Activity-Based Costing, Cost Drivers, Overhead Allocation, Profit Analysis
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2017

MI – May 2017 – L1 – SA – Q10 – Costing Techniques

Identify incorrect cost pool to cost driver relationship.

Question

Which of the following cost pools to cost drivers relationship is incorrect?
A. Set-up to number of set-ups
B. Material handling to number of material movement
C. Maintenance to number of maintenance
D. Depreciation of machine to number of machine hours
E. Material procurement to number of inspection

Answer

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Tags: ABC, Cost Drivers, Cost Pools
Level: Level 1

Topic: Costing Techniques
Series: MAY 2017

MI – May 2017 – L1 – SA – Q5 – Costing Techniques

Identify the structural determinant of cost in activity-based costing.

Question

In activity-based costing (ABC), the structural determinants of the cost of an activity are called:
A. Cost pools
B. Cost drivers
C. Prediction
D. Cost estimation
E. Cost activities

Answer

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Tags: ABC, Activity Costing, Cost Drivers
Level: Level 1

Topic: Costing Techniques
Series: MAY 2016

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

Question

Bonti Ltd produces three different products using two production departments. The company currently uses Absorption Costing to establish product costs and profitability. The Directors have recently attended a conference on Activity Based Costing (ABC) and are examining whether ABC might provide a better system for Bonti Ltd.

The following budgeted information for the period ended 31 December 2017 has been collated for each of the three products:

Product	Taya	Maya	Paya
Production and Sales (units)	8,750	4,000	6,000
Unit sales price (GH¢)	56	106	84
Direct materials	1.5kg	6kg	7kg
Direct labour:
– Machine Department (hours per unit)	1 hour	8 hours	6 hours
– Assembly Department (hours per unit)	4 hours	3 hours	1 hour
Direct expenses (GH¢ per unit)	2	6	3
Machine Department (machine hours per unit)	2 hours	5 hours	4 hours

Raw material costs GH¢4 per kilo, and the hourly rate for all labour is GH¢5. The direct expenses relate entirely to specialized packaging, which is uniquely designed for each of the products and is therefore directly attributable to that product alone.

The current costing system absorbs overheads to the Machine and Assembly Departments on the basis of a recovery rate of GH¢3.50 per machine hour and GH¢1 per labour hour respectively.

The following is an analysis of the overheads by department:

Department	Overheads (GH¢)
Purchasing Department	22,400
Production Set-up & Design Dept	34,500
Customer Service Department	32,600
Machine Department	123,000
Assembly Department	26,500

The Departmental Managers have provided the following additional information about operations in their departments:

Activity	Taya	Maya	Paya	Total
Number of set-ups	10	10	30	50
Number of customer orders	80	86	160	326
Number of purchase orders	30	32	50	112

The Machine Department is capital intensive, and the Assembly Department is labour intensive.

Required:

a) Calculate the prime cost for each product.
b) Calculate the profit per unit for each product if overheads are absorbed on the Current Costing basis.
c) Calculate the profit per unit for each product if overheads are absorbed using an Activity Based Costing approach. Clearly identify any cost drivers you assign.
d) Comment on why there is a difference between the profit/loss shown on an Absorption Costing basis and that shown using Activity Based Costing.
e) Identify THREE limitations of Activity Based Costing.

Answer

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Tags: ABC Limitations, Cost Drivers, Overhead Allocation, Prime Cost, Profit Analysis
Level: Level 2

Topic: Activity-based costing
Series: NOV 2017

MA – May 2021 – L2 – Q3a – Activity-based costing

Calculate the product unit costs for Santo's product lines using activity-based costing.

Question

a) Santo has three product lines: P1, P2, and P3. Since its inception, the company has been using a single direct labour cost percentage to assign overhead costs to products. Despite P3 being a relatively new product line, it is attracting additional business. However, increasing overhead costs have resulted in loss-making in recent times. P2 particularly has been a significant product line since its inception. However, it has lost considerable market share due to an increase in overhead cost in recent times and a consequent increase in price per unit. Management is, therefore, convinced that the costing system needs some review. A team led by the management accountant was put together to develop an improved system of costing based on activities. The team spent several weeks collecting data for the different activities and products.

Below is data on Santo’s three product lines and overhead costs for the current accounting period:

	P1	P2	P3
Production volume (units)	7,500	12,500	4,000
Selling price per unit (GH¢)	47	80	68
Material cost per unit (GH¢)	18	25	16
Direct labour cost per unit (GH¢)	4	8	6.4
Materials movements (in total)	4	25	50
Machine hours per unit	0.5	0.5	0.2
Set-ups (in total)	1	5	10
The proportion of engineering work	30%	20%	50%
Orders packed (in total)	1	7	22

Activities overhead cost:

Machine maintenance and depreciation: GH¢390,000
Material receiving and handling: GH¢150,000
Engineering: GH¢100,000
Packing: GH¢60,000
Set-up labour: GH¢18,688
Total: GH¢718,688

Required: Identify for each overhead activity, an appropriate cost driver from the information supplied, and then calculate the product unit costs using a system that assigns overheads based on the use of activities. (10 marks)

Answer

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Tags: Activity-Based Costing, Cost Drivers, Overhead Allocation, Product costing
Level: Level 2

Topic: Activity-based costing
Series: MAY 2021

MA – Nov 2016 – L2 – Q1b – Activity-based costing

Explain the similarities and differences between activity-based costing and the traditional system of assigning overheads to products.

Question

Identify and explain briefly THREE similarities and TWO differences between activity-based costing and the traditional system of assigning overheads to products. (6 marks)

Answer

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Tags: Activity-Based Costing, Cost Drivers, Cost Pools, Overhead Allocation, Traditional Costing
Level: Level 2

Topic: Activity-based costing
Series: NOV 2016

MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector

Assessment of ABC's applicability in the service sector and identification of four units in healthcare where it can be applied.

Question

Required:

Answer

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Tags: Activity-Based Costing, Cost Control, Cost Drivers, Healthcare, Service Sector
Level: Level 2

Topic: Activity-based costing
Series: Nov 2024

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

Question

Historically, Sadet used direct labor hours to allocate overhead costs. Now, they are considering activity-based costing (ABC).

Motorcycle Data:

Requirements:

a. Calculate the total profit for each of Sadet’s three motorcycle types, using:

i. The existing overhead allocation method based on labor hours.
ii. Activity-Based Costing (ABC).
(14 Marks)

b. Write a report for Sadet’s directors as a Management Accountant, evaluating the labor hours versus activity-based costing methods in Sadet’s circumstances.
(6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Activity-Based Costing, Cost Drivers, Overhead Allocation, Profit Analysis
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2017

MI – May 2017 – L1 – SA – Q10 – Costing Techniques

Identify incorrect cost pool to cost driver relationship.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: ABC, Cost Drivers, Cost Pools
Level: Level 1

Topic: Costing Techniques
Series: MAY 2017

MI – May 2017 – L1 – SA – Q5 – Costing Techniques

Identify the structural determinant of cost in activity-based costing.

Question

In activity-based costing (ABC), the structural determinants of the cost of an activity are called:
A. Cost pools
B. Cost drivers
C. Prediction
D. Cost estimation
E. Cost activities

Answer

Find Related Questions by Tags, levels, etc.

Tags: ABC, Activity Costing, Cost Drivers
Level: Level 1

Topic: Costing Techniques
Series: MAY 2016

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

Question

The following budgeted information for the period ended 31 December 2017 has been collated for each of the three products:

Product	Taya	Maya	Paya
Production and Sales (units)	8,750	4,000	6,000
Unit sales price (GH¢)	56	106	84
Direct materials	1.5kg	6kg	7kg
Direct labour:
– Machine Department (hours per unit)	1 hour	8 hours	6 hours
– Assembly Department (hours per unit)	4 hours	3 hours	1 hour
Direct expenses (GH¢ per unit)	2	6	3
Machine Department (machine hours per unit)	2 hours	5 hours	4 hours

The current costing system absorbs overheads to the Machine and Assembly Departments on the basis of a recovery rate of GH¢3.50 per machine hour and GH¢1 per labour hour respectively.

The following is an analysis of the overheads by department:

Department	Overheads (GH¢)
Purchasing Department	22,400
Production Set-up & Design Dept	34,500
Customer Service Department	32,600
Machine Department	123,000
Assembly Department	26,500

The Departmental Managers have provided the following additional information about operations in their departments:

Activity	Taya	Maya	Paya	Total
Number of set-ups	10	10	30	50
Number of customer orders	80	86	160	326
Number of purchase orders	30	32	50	112

The Machine Department is capital intensive, and the Assembly Department is labour intensive.

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: ABC Limitations, Cost Drivers, Overhead Allocation, Prime Cost, Profit Analysis
Level: Level 2

Topic: Activity-based costing
Series: NOV 2017

MA – May 2021 – L2 – Q3a – Activity-based costing

Calculate the product unit costs for Santo's product lines using activity-based costing.

Question

Below is data on Santo’s three product lines and overhead costs for the current accounting period:

	P1	P2	P3
Production volume (units)	7,500	12,500	4,000
Selling price per unit (GH¢)	47	80	68
Material cost per unit (GH¢)	18	25	16
Direct labour cost per unit (GH¢)	4	8	6.4
Materials movements (in total)	4	25	50
Machine hours per unit	0.5	0.5	0.2
Set-ups (in total)	1	5	10
The proportion of engineering work	30%	20%	50%
Orders packed (in total)	1	7	22

Activities overhead cost:

Machine maintenance and depreciation: GH¢390,000
Material receiving and handling: GH¢150,000
Engineering: GH¢100,000
Packing: GH¢60,000
Set-up labour: GH¢18,688
Total: GH¢718,688

Answer

Find Related Questions by Tags, levels, etc.

Tags: Activity-Based Costing, Cost Drivers, Overhead Allocation, Product costing
Level: Level 2

Topic: Activity-based costing
Series: MAY 2021

MA – Nov 2016 – L2 – Q1b – Activity-based costing

Explain the similarities and differences between activity-based costing and the traditional system of assigning overheads to products.

Question

Identify and explain briefly THREE similarities and TWO differences between activity-based costing and the traditional system of assigning overheads to products. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Activity-Based Costing, Cost Drivers, Cost Pools, Overhead Allocation, Traditional Costing
Level: Level 2

Topic: Activity-based costing
Series: NOV 2016

Question Tag: Cost Drivers

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MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector

Assessment of ABC's applicability in the service sector and identification of four units in healthcare where it can be applied.

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

MI – May 2017 – L1 – SA – Q10 – Costing Techniques

Identify incorrect cost pool to cost driver relationship.

MI – May 2017 – L1 – SA – Q5 – Costing Techniques

Identify the structural determinant of cost in activity-based costing.

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

MA – May 2021 – L2 – Q3a – Activity-based costing

Calculate the product unit costs for Santo's product lines using activity-based costing.

MA – Nov 2016 – L2 – Q1b – Activity-based costing

Explain the similarities and differences between activity-based costing and the traditional system of assigning overheads to products.

MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector

Assessment of ABC's applicability in the service sector and identification of four units in healthcare where it can be applied.

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

MI – May 2017 – L1 – SA – Q10 – Costing Techniques

Identify incorrect cost pool to cost driver relationship.

MI – May 2017 – L1 – SA – Q5 – Costing Techniques

Identify the structural determinant of cost in activity-based costing.

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

MA – May 2021 – L2 – Q3a – Activity-based costing

Calculate the product unit costs for Santo's product lines using activity-based costing.

MA – Nov 2016 – L2 – Q1b – Activity-based costing

Explain the similarities and differences between activity-based costing and the traditional system of assigning overheads to products.

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MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector

Assessment of ABC's applicability in the service sector and identification of four units in healthcare where it can be applied.

You're reporting an error for "MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector"

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

You're reporting an error for "PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques"

MI – May 2017 – L1 – SA – Q10 – Costing Techniques

Identify incorrect cost pool to cost driver relationship.

You're reporting an error for "MI – May 2017 – L1 – SA – Q10 – Costing Techniques"

MI – May 2017 – L1 – SA – Q5 – Costing Techniques

Identify the structural determinant of cost in activity-based costing.

You're reporting an error for "MI – May 2017 – L1 – SA – Q5 – Costing Techniques"

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

You're reporting an error for "MA – Nov 2017 – L2 – Q3 – Activity-based costing"

MA – May 2021 – L2 – Q3a – Activity-based costing

Calculate the product unit costs for Santo's product lines using activity-based costing.

You're reporting an error for "MA – May 2021 – L2 – Q3a – Activity-based costing"

MA – Nov 2016 – L2 – Q1b – Activity-based costing

Explain the similarities and differences between activity-based costing and the traditional system of assigning overheads to products.

You're reporting an error for "MA – Nov 2016 – L2 – Q1b – Activity-based costing"

MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector

Assessment of ABC's applicability in the service sector and identification of four units in healthcare where it can be applied.

You're reporting an error for "MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector"

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

You're reporting an error for "PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques"

MI – May 2017 – L1 – SA – Q10 – Costing Techniques

Identify incorrect cost pool to cost driver relationship.

You're reporting an error for "MI – May 2017 – L1 – SA – Q10 – Costing Techniques"

MI – May 2017 – L1 – SA – Q5 – Costing Techniques

Identify the structural determinant of cost in activity-based costing.

You're reporting an error for "MI – May 2017 – L1 – SA – Q5 – Costing Techniques"

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

You're reporting an error for "MA – Nov 2017 – L2 – Q3 – Activity-based costing"

MA – May 2021 – L2 – Q3a – Activity-based costing

Calculate the product unit costs for Santo's product lines using activity-based costing.

You're reporting an error for "MA – May 2021 – L2 – Q3a – Activity-based costing"

MA – Nov 2016 – L2 – Q1b – Activity-based costing

Explain the similarities and differences between activity-based costing and the traditional system of assigning overheads to products.

You're reporting an error for "MA – Nov 2016 – L2 – Q1b – Activity-based costing"

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