Reference no: EM132611058
Harry Limited is preparing its activity-based budgets for the coming year. As the cost accountant you have established that the total budgeted production overheads for the coming year to be MUR 2 million. Based on last year's results you have decided that this total should be apportioned to the following activities in the percentages listed. Inspection 10% Materials handling 10% Materials procurement 15% Machining 30% Assembly 30% Dispatch 5%
You have also budgeted for the following level of activity in relation to each of the company's three products:
A B C
Inspections 300 300 200
Times material handled 4,000 4,000 2,000
No. of purchase orders 300 300 300
Machine hours 30,000 18,000 2,000
Assembly labour hours 10,000 6,000 4,000
Sales orders dispatched 600 600 400
Budgeted units 20,000 20,000 5,000
Direct material per unit (Rs) 50 40 50
Direct labor costs per unit (Rs) 50 60 40
Required:
Question (a) Calculate the total budgeted production cost per unit of each product if total overheads are absorbed on the basis of machine hours.
Question (b) Calculate the total budgeted production cost per unit of each product if total overheads are absorbed using the activity based costing method.
Question (c) Comment on the results and highlight the reasons for the difference in cost
Question (d) Explain why a manufacturing company may decide to implement an activity based costing system and the benefits it may bring