Sales 172 500 Direct Material -45 000 Direct labour -90 000 Manufacturing overheads Note 1 -30 000 Profit 7 500 Note 1:
Posted: Tue Apr 26, 2022 9:40 am
Sales 172 500 Direct Material -45 000 Direct labour -90 000
Manufacturing overheads Note 1 -30 000 Profit 7 500 Note 1: These
overheads were allocated based on the basis of labour hours. James
is concerned that the current cost allocation isn’t accurate and is
considering the use of an activity-based costing system. He has
identified that manufacturing overheads can be further split
between the following activities, together with the nature of the
cost and the driver for each activity: Activity Percentage of Total
cost Activity Driver Fixed/Variable Electricity 20% Machine hours
Variable Rental of factory 5% Labour hours Fixed Marketing – Note 1
10% Units produced Fixed Depreciation – Note 2 5% Machine hours
Fixed Machine-related costs 15% Machine hours Fixed Quality
Assurance 30% Labour hours Fixed Stitching costs 15% Labour Hours
Variable Total 100% Page 5 of 5 Note 1: Marketing costs are
incurred on the ‘Sportz’ tyre only, as it is the default for most
clients to buy the Regz tyre, James felt that more awareness around
the ‘Sportz’ tyre needed to be created. Note 2: You may assume that
Depreciation is regarded as a proxy for capital expenditure The
current levels of activity and usages by the two products within
the factory are as follows: Current levels of activity Driver
Practical Actual Sportz Regz Machine Hours 2 000 000 1 800 000 200
000 1 600 000 Labour Hours 1 500 000 1 200 000 300 000 900 000 Kgs
of Direct Material Unlimited 1 500 000 300 000 1 200 000 QUESTION 1
REQUIRED SubTotal Total 1. Calculate the total cost per unit for
both the ‘Sportz’ and ‘Regz’ tyre, using the traditional costing
method (i.e., based on labour hours) to allocate overheads to each
product. 9 9 2. Calculate the total cost per unit for ‘Sportz’ and
‘Regz’ tyre, using the activity-based costing method to allocate
overheads to each product. 21 Neatness and layout of workings 1 22
3. Compare the profit per tyre under both costing methods and
identify and explain the reasons for the change therein. 4
Manufacturing overheads Note 1 -30 000 Profit 7 500 Note 1: These
overheads were allocated based on the basis of labour hours. James
is concerned that the current cost allocation isn’t accurate and is
considering the use of an activity-based costing system. He has
identified that manufacturing overheads can be further split
between the following activities, together with the nature of the
cost and the driver for each activity: Activity Percentage of Total
cost Activity Driver Fixed/Variable Electricity 20% Machine hours
Variable Rental of factory 5% Labour hours Fixed Marketing – Note 1
10% Units produced Fixed Depreciation – Note 2 5% Machine hours
Fixed Machine-related costs 15% Machine hours Fixed Quality
Assurance 30% Labour hours Fixed Stitching costs 15% Labour Hours
Variable Total 100% Page 5 of 5 Note 1: Marketing costs are
incurred on the ‘Sportz’ tyre only, as it is the default for most
clients to buy the Regz tyre, James felt that more awareness around
the ‘Sportz’ tyre needed to be created. Note 2: You may assume that
Depreciation is regarded as a proxy for capital expenditure The
current levels of activity and usages by the two products within
the factory are as follows: Current levels of activity Driver
Practical Actual Sportz Regz Machine Hours 2 000 000 1 800 000 200
000 1 600 000 Labour Hours 1 500 000 1 200 000 300 000 900 000 Kgs
of Direct Material Unlimited 1 500 000 300 000 1 200 000 QUESTION 1
REQUIRED SubTotal Total 1. Calculate the total cost per unit for
both the ‘Sportz’ and ‘Regz’ tyre, using the traditional costing
method (i.e., based on labour hours) to allocate overheads to each
product. 9 9 2. Calculate the total cost per unit for ‘Sportz’ and
‘Regz’ tyre, using the activity-based costing method to allocate
overheads to each product. 21 Neatness and layout of workings 1 22
3. Compare the profit per tyre under both costing methods and
identify and explain the reasons for the change therein. 4