Reference no: EM131043338 , Length: word count:1500

Assignment Question: The following budgeted information relates to ABC Ltd for the forthcoming period:

	Product X	Product Y	Product Z
Sales and production (units)	50,000 units	40,000 units	30,000 units
Selling price (per unit)	$45	$95	$73
Prime cost (per unit)	$32	$84	$65

 

	Hours	Hours	Hours
Machine department (machine hours per unit)	2	5	4
Assembly department (direct labour hours per unit)	7	3	2

Overheads allocated and apportioned to production departments (including service cost centre costs) were to be recovered in product costs as follows:

1. Machine department at $3.50 per machine hour,

2. Assembly department at $1.20 per direct labour hour.

The management ascertains that the above overheads could be reanalysed into 'cost pools' as follows:

Cost pool		Cost driver	Quantity for the period
Machining services	$357,000	Machine hours	420,000
Assembly services	$318,000	Direct labour hours	530,000
Set-up costs	$30,000	Set-ups	530
Order processing	$156,000	Customer orders	32,000
Purchasing	$84,000	Supplier orders	11,200
Total	$945,000

The management has also provided you with the following estimates for the period:

	Product X	Product Y	Product Z
Number of set-ups	120	200	210
Customer orders	8,000	8,000	16,000
Suppliers' orders	3,000	4,000	4,200

Requirements: You are to provide a report of not more than 1,500 words (on written part only excluding numerical information) that includes the income statements using both conventional absorption costing and activity-based costing and comment on why certain costing method is considered to present a fairer valuation of the product cost per unit.