Computation of Operating Profit by Activity Based Costing Method

Management Accounting

Table of Contents
Computation of the operating profit by Activity based costing method.....................................3
Recommendation to the company...............................................................................................4

QUESTION 1
Computation of the operating profit by Activity based costing method
Table 1 Computation of the operating profit
Particulars Blue Black Red Purple
Number of units 50000 40000 9000 1000
Revenue 75000 60000 13950 1650
Direct Material Cost 25000 20000 4680 550
Direct Labor 1000 800 180 20
Indirect Labor cost 6466.67 4666.67 5913.33 2953.33
Fringe benefit cost 4586.67 3866.67 4363.33 3181.33
Computer system cost 3166.67 3166.67 2526.67 1140
Machinery 4000 3200 720 80
Maintenance 2000 1600 360 40
Energy 1000 800 180 20
Operating Profit/Loss 27779.99 21899.99 -4973.3 -6334.7
Working Notes
Determination of the cost driver and allocation of cost
Table 2 allocation of cost on the basis of activity based costing method
Particulars
Overhead
Cost Cost Driver Blue Black Red Purple
Indirect Labor
Cost 10000 Production run
3333.3
3
3333.3
3
2533.3
3 800
8000 Set up run
2133.3
3
533.33
3 3200
2133.3
3
2000 Volume 1000 800 180 20
Total
6466.6
7
4666.6
7
5913.3
3
2953.3
3