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Question - Mercury Ltd produces two products with details below:
Glopp
Gash
Production (units)
10,000
5,000
Batch size
100
20
Set ups per batch
3
1
Special parts per unit
4
Purchases per year
200
300
Activity
Cost pool £
Cost Driver
Set ups
27,500
Number of set ups per batch
Special parts handling
30,000
Number of special parts per unit
Purchase order
Number of orders per year
Required -
1. How are direct costs different to indirect costs? Give examples.
2. Calculate the cost driver rates for each activity.
3. How much overhead would be attributed to a unit of Glopp?
4. Compare the usage of Traditional Absorption costing with Activity Based costing.
5. Discuss how budgeting could be applied to ABC costing.
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