Calculate the cost per activity for each cost pool

Assignment Help Managerial Accounting
Reference no: EM131348967


Assessment Purpose: This assessment is designed to allow students to demonstrate their ability to analyse, given financial information relating to a management accounting problem similar to real world problems, and present their finding and conduct analysis of this information as it applies to accounting concepts.

Topic: Management Accounting Problem

Task Details: Students are analyse the given information, make calculations where relevant and draw relevant, supported conclusions and make a justified recommendations. Responses are to be formatted into a professional report for each part of each question, as would be expected of someone working in a modern accountant's office.


The Genre company is the manufacturer of two products the Basic and the Advanced .Details of production data and product cost data are as follows:

                                                             Basic                       Advanced

Direct material                                        40                             60

Direct labour                                           2 hours                      3 hours

Manufacturing overhead                           2 hours                      3 hours

Direct labour cost per hour                       $15 per hour              $15 per hour

Production                                              2000 units                  10000 units

Manufacturing overhead has traditionally used direct labour hours to calculate the predetermined overhead rate.

The Manufacturing overhead budget is as follows:

Set up costs                                                $360,000

Engineering costs                                         180,000

Machine related costs                                   900,000

Plant related costs                                       192,000

Total                                                          $1,632,000

The Genre company has traditionally priced its products at120 per cent of manufacturing cost.

Recently the Genre company has found it has had difficulty selling its advanced product with a competitor entering the market from overseas and making substantial sales at a price considerably below Genre's price for the Advanced product.

The CEO of Genre, Jane Monk, cannot understand how this could be and has asked you to investigate the matter. You start to examine some of the data and decide  to check out a new approach to allocate costs called Activity Based Costing .You have managed to identify the following information:

Activity Cost Pool                   Cost Driver                                   Budgeted level of Cost Driver

Set up costs                           Number of production runs             80 runs

Engineering costs                   Engineering changes                      200 engineering changes

Machine related costs             Machine hours                               18,000 hours

Plant related costs                 Floor space in sqft                          3,840 sqft

In addition the following information has been determined:

-The Basic product is manufactured in production runs of 50 units each and the Advanced product is manufactured in 250 unit batches

-75% of the engineering changes are used by the Basic product with the remaining 25% used by the  Advanced product

-Each Basic product requires 4 machine hours whereas each Advanced product requires 1 machine hour

-The plant has 3,840 square feet of floor space with 80% of it used in the production of the Basic product.


Using the information above and your knowledge of Activity Based  Costing you are required to provide answers to the following :

(a) Calculate the predetermined overhead rate that would be used under traditional overhead costing.

(b) Calculate the product cost per unit for the Basic and Advanced products under traditional costing.

(c) Calculate the price that would be charged for the Basic and the Advanced products under traditional costing.

(d) Calculate the cost per Activity for each cost pool.

(e) Calculate the cost per unit for Basic and Advanced  products using Activity Based Costing.

(f) Based on your calculations with respect to Basic and Advanced products comment upon whether either product has been overcosted or undercosted.

(g) Discuss the benefits that can be obtained from using an Activity Based Costing system and whether it would be useful in costing the current products.

Reference no: EM131348967

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Case Study – 2000 words report and analysis – group assessment. Students will form groups of three or four. Students must upload their submission to the Moodle Assignment Link and Turnitin on the KOI Moodle Subject Home Page. This is the submission due date and time. A printed copy should also be handed to the Tutor during that week’s tutorial to assist with marking. Students need to support emir analysis with references from the text and a minimum of six suitable, reliable, current and academic, acceptable sources – check with your tutor if unsure of the validity of sources. Groups seeking Credit or above grades should support their analysis with increased number of references sources comparable to the grade they are seeking.

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