Question

# Q3.ABC corporation applying normal costing system has provided the following data from its activity-based costing system...

Q3.ABC corporation applying normal costing system has provided the following data from its activity-based costing system as follows: (Amounts in SAR)                                           [3 Marks]

 Activities Estimated Overhead Costs Expected Cost Drivers Quantities Cost Drivers Assembly 120,500 10,000 Number of Machine Hours Processing Orders 80,500 7,000 Number of Orders Inspection 75,500 5,000 Number of Inspection Hours Total 276,000 22,000

Actual Data concerning the company's product X appears below:

Annual unit production and sales 500 units

Annual machine hours 5,000

Annual number of orders   4,500

Annual inspection hours 3,000

Direct material cost   150 per unit

Direct labor cost   100    per unit

Required:

Compute total costs per unit for the product X   using activity-based costing system      [3 Marks]

Solution: Calculation of total costs per unit for the product X:

1. Calculation of Activity Cost rates:

 Activities Estimated Overhead Costs (a) Expected Cost Drivers Quantities (b) Cost per activity (a/b) Assembly \$120,500 10,000 \$12.05 per machine hour Processing Orders \$80,500 7,000 \$11.50 per order Inspection \$75,500 5,000 \$15.10 per inspection hour

2. Statement of Cost:

 Activities Cost per activity (c) Activity Level (d) Overhead cost (e=c*d) Cost per unit (e/500) Assembly \$12.05 per machine hour 5,000 \$60,250 \$120.5 Processing Orders \$11.50 per order 4,500 \$51,750 \$103.5 Inspection \$15.10 per inspection hour 3,000 \$45,300 \$90.6 Total Overhead Cost- \$157,300 \$314.6

3. Total cost per unit for Product X:

 Direct Material Cost \$150 Direct labor cost \$100 Total Overhead Cost \$314.6 Total cost per unit - \$564.6

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