Question

MC Bristol Electronics produces wide range of...

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31^st December 2017.

Cost data
Total manufacturing overhead for year	£1,000,000
Total hours for year	60,000 hours
Direct labour cost per hour	£10

Data for 3 products only

	Product A	Product B	Product C
Annual production	1,000 units	2,000 units	5,000 units
Material cost per unit	£5.00	£6.00	£7.00
Direct labour hours per unit	1.00	1.50	0.50

ABC data for all products
Cost pool/driver	Annual costs (£s)	Annual volume
Number of set-ups	200,000	1,000
Inspection time (hours)	500,000	3,000
Machine maintenance (hours)	100,000	5,000
Number of purchases	100,000	500
Number of shipments	100,000	500
	1,000,000

ABC data 3 products	Product A	Product B	Product C
Number of set-ups	20	180	30
Inspection time (hours)	20	50	300
Machine maintenance (hours)	30	40	20
Number of purchases	3	4	5
Number of shipments	3	4	6

Determine the total overhead cost for Product A using the using the activity based data.

Answer 1

Solution:

Activity Rate Determination
Cost pool/driver	Annual Costs (£s)	Volume	Rate per Activity
No. of set-ups	200000	1,000	200
Inspection Time (hours)	500,000	3,000	166.7
Machine Maintenance (hours)	100,000	5,000	20
Number of purchases	100,000	500	200
Number of shipments	100,000	500	200
Overhead Cost for Product A using ABC
	Rate per activity	Activity volume	ABC Cost
No. of set-ups	200	20	4000
Inspection Time (hours)	166.67	20	3333
Machine Maintenance (hours)	20	30	600
Number of purchases	200	3	600
Number of shipments	200	3	600
Total Overhead Cost			9133