Case Study One Medical Temp Co Mtc Medical Temp Co Mtc Has A Production Process For Which The Following Costs Have 1 (212.9 KiB) Viewed 64 times
Case Study One: Medical Temp co (MTC) Medical Temp Co (MTC) has a production process for which the following costs have been estimated for the period ending 31 December 20X8: $ 15,600 Material receipt and inspection cost Power cost Material handling cost 19,500 13,650 Three products - X, Y and Z are produced by workers who perform a number of operations on material blanks using hand held electrically powered drills. Three products are sold at the same price. The workers have a wage rate of $9 per hour. The following budgeted information has been obtained for the period ending 31 December 20X8: Product Product Product Х Y Z 2,000 1,500 800 10 5 16 Production quantity (units) Batches of material Data per product unit Direct material (sq. metres) Direct material ($) Direct labour (minutes) Number of power drill operations 4 6 3 5 3 6 24 40 60 6 3 2 Overhead costs for material receipt and inspection, process power and material handling are presently each absorbed by product units using rates per direct labour hour.
An activity-based costing investigation has revealed that the cost drivers for the overhead costs are as follows: 1. Material receipt and inspection: number of batches of material. II. Process power: number of power drill operations. III. Material handling: quantity of material (sq. metres) handled. Required: A. to prepare a summary which shows the budgeted product cost per unit for each of the products X, Y and Z for the period ending 31 December 20X8 detailing the unit costs for each cost element: a. (i)using the traditional method for the absorption of overhead costs and b. (ii) using an approach which recognises the cost drivers revealed in the activity- based costing investigation; c. (iii)discuss the implications of Medical Temp co (MTC) making the decision to switch to ABC B. to comment on the relevance of the apportioned overhead cost figures to your recommendation. C. To determine which product to make first to capacity if the company aims to maximise profits.
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