How to calculate the cost per unit for each product , Cost Accounting

Asian Ltd makes three types of gold watch - the Diva (D), the Classic (C) and the Poser (P). A traditional product costing system is used at present; although an activity based costing (ABC) system is being considered. Details of the three products for a typical period are:

Product

Labour hours per unit

Machine hours per unit

Materials cost per unit

Production units

A

0.5

1.5

20

750

C

1.5

1

12

1,250

P

1.0

3

25

7,000

Direct labour costs $6 per hour and production overheads are absorbed on a machine hour basis. The overhead absorption rate for the period is $28 per machine hour.

Required:

(a)    Calculate the cost per unit of each product using the traditional methods, absorbing overheads on the basis of machine hours.

Total production overheads are $654,000 and further analysis shows that the total production overheads can be divided as follows:

Costs relating to set-ups

35%

Costs relating to machinery

20%

Costs relating to materials handling

15%

Costs relating to inspection

30%

Total production overhead

100%

The following total activity volumes are associated with each product line for the period as a whole:

Product

Number of set-ups

Number of movements of materials

Number of inspections

D

75

12

150

C

115

21

180

P

480

87

670

 

670

120

1,000

Required:

(b)   Calculate the cost per unit for each product using ABC principles (work to two decimal places)

(c)  Explain why costs per unit calculated under ABC are often very different to the costs per unit calculated under more traditional methods. Use the information from Asian Ltd to illustrate.

Posted Date: 2/26/2013 7:18:31 AM | Location : United States







Related Discussions:- How to calculate the cost per unit for each product , Assignment Help, Ask Question on How to calculate the cost per unit for each product , Get Answer, Expert's Help, How to calculate the cost per unit for each product Discussions

Write discussion on How to calculate the cost per unit for each product
Your posts are moderated
Related Questions
Definition of Variance Analysis Variance analysis can merely be defined like the process of analyzing the difference between the actual cost and the standard cost this variati

Elements of Manufacturing costs Manufacturing costs are the costs incurred to create a product. Keep in mind for a product that refers to both services and goods. The ele

Features of Effective Cost Center Framework During the establishing cost centers, an organization must consider the given points as: a) Clear definition about the cost cent

The following information has been prepared for XYZ Ltd by their assistant accountant. The risk free rate of interest on government securities in 2008 is 7.3% Required:

The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, and the price of the firm’s output is $25. The cost of other va

what is the purpose of cost accounting and its nat ure?

UTILITY OF BREAK EVEN POINT IN MANAGERIAL DECISION MAKING 1. It assists in determination of sales mix 2. It assists in exploring new markets 3. It assists in deciding abo

DIFFERENTIAL COSTING Marginal costing is often confused with differential costing. The word 'DIFFERENTIAL COSTING' means 'a technique used in the preparation of adhoc informati

Example of Methods of Allocating Service Costs Suppose the following data: User department Unit of Service Provided Costs Prior to Service Dep

If a company trades in a building towards a new building and does not recognize a gain or loss (because of code section 1031), will this transaction affect the cash flows statement