Calculate the unit cost of each product

Assignment Help Managerial Accounting

Reference no: EM133049309

DQ 1. What problems can arise with using a volume-based costing system in a modern manufacturing environment?

DQ 2. A managing director was heard to remark: ‘Activity-based costing may offer some entities advantages, but given our situation I do not think the cost of implementing such a system can be justified.' Is this stance reasonable? Discuss.

Exercises
1. Cheero Company produces two types of stereo units: Deluxe and Regular. For the most recent year, Cheero reports the following data:

Budgeted manufacturing overhead	$150 000
Budgeted direct labour hours	50 000
Actual direct labour hours	54 000
Actual manufacturing overhead	250 000

	Deluxe	Regular
Units produced	5 000	50 000
Prime costs	$50 000	$320 000
Direct labour hours	6 000	48 000

Required:
a) Calculate a predetermined overhead rate based on direct labour hours.
b) Calculate the unit product cost of each type of stereo unit.

Problems

1. Realwood Pty Ltd manufactures two types of timber felling machines - Toppler and Muncher. The company is currently using a traditional costing system with machine hours as the cost driver. The company is considering whether to use the activity-based costing (ABC) method to allocate overhead costs to products. Budgeted overhead costs of the upcoming accounting period follow:

Activity	Total budgeted activity cost	Activity driver	Budgeted level for activity driver
Warehousing	$55 000	Number of material moves	550 moves
Machine maintenance	$47 000	Number of machine hours	16 000 hours
Setup	$250 000	Number of production runs	400 runs

Information for the two products completed during the period is as follows:

	Muncher	Toppler
Number of material moves	320	280
Number of production runs	60	100
Total machine hours	10500	5500
Units completed	3000	1000
Direct material cost per unit	$20	$35
Direct labour cost per unit	$40	$70

Required:

a) Calculate the unit cost of each product if the conventional costing approach is used.

b) Determine the cost of producing each product if activity-based costing is used.

Reference no: EM133049309

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