Reference no: EM132622857
Question - DAY Ltd manufactures four products - A, B, C and D using the same technology in machine and processes. The following data relates to a production month:
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A
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B
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C
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D
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Volume (units)
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300
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4,000
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400
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5,000
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Material cost/unit
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$4
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$4
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$15
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$15
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Labour cost/unit
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$2
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$2
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$12
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$10
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Direct labour hour/unit
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0.5
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0.5
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2
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1.5
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Machine hour/unit
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0.25
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0.25
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1.0
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1.5
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The total production overhead costs for the month were analyzed as follows:
Machine related factory overhead costs - $12,600
Set-up costs are - $9,450
Cost of placing material orders - $1,200
Material handling costs - $6,000
Administration for spare parts - $3,060
These overhead costs are absorbed by products on a machine hour rate of $3.60 per hour, giving an overhead cost per product of; A = $0.90, B = $0.90, C = $3.60, D = $5.40
However, investigation into the activities related to the production overhead for the month showed the following figures.
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A
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B
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C
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D
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No. of set-ups
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2
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4
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3
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6
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No. of material orders
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2
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3
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2
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3
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No. of material handling
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2
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8
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4
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10
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No. of spare parts
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1
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4
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1
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3
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Required -
a) Compute an overhead cost per product using the ABC techniques, tracing overheads to production units by means of cost drivers.
b) Comment briefly on the differences disclosed between overheads traced by the present system and those traced by ABC.
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