Cost of Production & Activity Based Costing - Desklib

This article explains the concepts of cost of production and activity based costing with solved examples of Pristine Manufacturing and Ay Manufacturer. It includes a detailed cost production report and cost per unit calculations for 500 units produced. The subject covered is FNS50217/ FNSACC517.

Company 1: Pristine Manufacturing
Pristine Manufacturing uses a system for the mass production of similar products, where the costs
associated with individual units of output cannot be differentiated from each other.
Information for December 20XX is as follows:
5000 units were commenced at the beginning of the month and at the end of the month, 400 are 50%
completed. Costs for the month are:
Item $
Direct materials 250,000.00
Direct labour 182,400.00
Factory overhead 288,000.00
On the next page, you are required to:
a. State what cost system Pristine Manufacturing uses.
b. Using the table template on the next page, prepare a cost of production report for the month of
December 20XX. You will show the physical and equivalent completed units and the allocation of
costs to direct materials, direct labour and factory overhead.
ual units of output cannot be differentiated from each other.
Information for December 20XX is as follows:
5000 units were commenced at the beginning of the month and at the end of the month, 400 are 50%
completed. Costs for the month are:
FNS50217/ FNSACC517 Page 1 of 5 Assessment 1 – Cost of Production & Activity Based Costing

a. The cost system Pristine Manufacturing uses is: Process costing. This method is used to ascertain the costs of products that deals in
continuous production of similar type of goods in large quantity.
FNS50217/ FNSACC517 Page 2 of 5 Assessment 1 – Cost of Production & Activity Based Costing

b. Produce your cost production report using the table below.
Cost of Production Report
Equivalent completed units
Physical units Direct materials Direct labour Factory overhead
$ $ $
Completed 4600 250000*4600/4800 = 239584 182400*4600/4800 =
174800
288000*4600/4800 =
276000
Work in process 400 250000*200/4800 = 10416 182400 * 200/4800 = 10416 288000*200/4800 = 12000
Units accounted for 5000
Work done to date 250000 182400 288000
Costs
Costs to be allocated 5000 250000 182400 288000
Divide by equivalent unit 5000 4800 4800
Cost per equivalent unit 50 38 60
Allocation of costs
Direct materials 4600 =4600 * 50 = 230000
Direct labour 4600 = 4600 * 38 = 174800
Factory overhead 4600 = 4600 * 60 = 276000
Completed units 4600
Total costs allocated = 230000 + 174800 +
276000 = 680800
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FNS50217/ FNSACC517 Page 3 of 5 Assessment 1 – Cost of Production & Activity Based Costing

Company 2: Ay Manufacturer
Ay Manufacturer has the following areas of activity, cost drivers and application rates.
Activity area Cost driver Application rate
Design of product Changes to design $1,000.00 per change
Materials No of requisitions $150.00 per requisition
Assembly Machine hours $100.00 per machine hrs
Packing Labour hours $60.00 per labour hour
Sales and distribution No. of sales orders $50.00 per unit
During an accounting period, the following cost driver information is gathered:
 Number of design changes: 4
 Number of material requisitions: 40
 Machine hours for assembling: 3,000 hours
 Labour hours: 1,800 labour hours
 Sales order: 60
Using Activity Based Costing (ABC), showing all your workings, calculate the following if 500
units were produced:
a.) The total cost of production
Cost on material = 40*150 = $ 6000
Machine hours = 100 * 3000 = $ 300000
Designing = 1000 * 4 = $ 4000
Packaging = 60 * 1800 = $ 108000
Sales and distribution = 60 * 50 = $ 3000
Total cost of production = 6000 + 300000 + 4000 + 108000 + 3000
= $ 421000
FNS50217/ FNSACC517 Page 4 of 5 Assessment 1 – Cost of Production & Activity Based Costing

b.) Cost per unit for activity level (show all your workings)
Number of units = 500
Direct manufacturing costs = Cost of material + machine hours on assembling
= 6000 + 300000 = $ 306000
Direct production cost per unit = 306000 / 500
= $ 612
indirect costs = Designing + Packaging + sales and distribution
= 4000 + 108000 + 3000 = $ 115000
Indirect cost per unit = 115000 / 500
= $ 230
Overall cost per unit = Cost of production / Number of units
=421000 / 500
= $ 842
So, overall cost per unit is $ 842, direct production cost per unit is $ 612 and indirect is $ 230.
FNS50217/ FNSACC517 Page 5 of 5 Assessment 1 – Cost of Production & Activity Based Costing