ABC Corporation makes three types of products and currently uses traditional product costing system. The management is considering using activity based costing. Below is the details on the tree products
|Products||Labor hour per unit||Machine hours per unit||Material cost per unit SR||Volume of productions
Total manufacturing overhead are SR 750,000. In- depth analysis for overheads has been done to apply activity based costing as follows:
|Activities||Activity’s Overheads cost pool|
The actual quantity used of activities by products as follows:
|Products||Set- ups||Machinery (hours)||Material handling||Inspection|
Direct labor rate is SR 5 per hour and overhead allocated to products under traditional costing system using machine hour as allocation base.
- Calculate cost per unit per each product under traditional costing system.
- Calculate cost per unit per each product under activity based costing.
- Comment on results.
- In 2020, ABC Company produces a single product with the following information: (2.5 marks)
|Variable cost per unit:||SR|
|Direct martial PER UNIT||8|
|Direct labor per unit||10|
|Manufacturing over head||5|
|Variable selling expense per units sold||2|
|Fixed manufacturing costs per year||150,000|
|Fixed selling and administrating expenses per year||150,000|
|Number of units produced||20,000|
|Selling price per unit||50|
- Prepare income statement using absorption costing and variable costing assuming all 20,000 units sold.
- Prepare income statement using absorption costing and variable costing assuming all 15,000 units sold and 5,000 units unsold.
- Comment on results explaining which costing method produces more profit in case of inventory.