Solution – b:Calculation of Selling Price under Activity Based CostingParticularsFREDMARTHACost per unit (WN-1)500180Add: Profit Margin (20% of manufacturing cost)10036Selling Price600216WN-1: Calculation of cost per unit under activity based costing(i)Cost per activity using Activity Based CostingOverheadsCost driverBudgeted LevelOverheadAmountCost peractivityMachine related costsMachine hours9,000450,00050Setup and inspectionNumber of production runs40180,0004,500EngineeringEngineering change order10090,000900Plant related costsSquare footage of space1,92096,00050816,0005,500(ii)Activity required by FRED and MARTHAOverheadsCost driver BudgetedLevel OverheadAmount Costperactivity Activity Required FRED MARTHAMachine related costsMachine hours9,000450,000504,0005,000Setup and inspectionNumber of production runs40180,0004,5002020EngineeringEngineering change order10090,0009007525Plant related costsSquare footage of space1,92096,000501,536384816,0005,5005,6315,429(iii)Cost per unit of products using the Activity Based CostingParticulars Fred Martha Units Rate perunitTotal Units Rate perunitTotalDirect Material1,0004040,0005,00060300,000
Direct Labour1,0003030,0005,00045225,000Manufacturing overheadMachine related costs4,00050200,0005,00050250,000Setup and inspection204,50090,000204,50090,000Engineering7590067,5002590022,500Plant related costs1,5365076,8003845019,200Total Costs504,300906,700No. of Units1,0005,000Cost per unit504.30181.34Cost per unit (rounded off)500.00180.00
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