Detailed Cost Analysis and Product Pricing Homework Solution

This document provides a comprehensive solution to a management accounting assignment focusing on cost analysis and product pricing. It begins with a table demonstrating the calculation of cost per unit using a conventional approach, detailing direct materials, direct labor, and manufacturing overhead costs for two products, Fred and Martha. The solution then delves into activity-based costing (ABC), outlining the overhead rates and cost drivers for various activities like machine-related costs, setup & inspection, engineering, and plant-related costs. A detailed calculation of product costs using ABC is presented, followed by the determination of product prices, considering a 120% markup on total manufacturing costs. The assignment includes a list of cited references, demonstrating a thorough understanding of financial management principles.

MANAGEMENT ACCOUNTING

Solution:
a.
Table showing Calculation of Cost per unit using Conventional Approach:
(In $)
PARTICULARS FRED MARTHA
Total Number of Units 1000 5000
Direct materials 40 60
Direct labours 30 45
Manufacturing overheads (see note below) 96 144
Total Cost Per Unit 166 249
Note for calculation:
Total Manufacturing Cost 816000
Total Hours 17000
Manufacturing cost per unit 48
Calculation of Total Hours
- Fred (1000*2) 2000
- Martha (5000*3) 15000
Total Hours 17000
b.
Calculation of Cost per activity
Activity Cost ($) Cost Driver Budgeted
Level Unit Rate Per
Unit
Machine Related
Costs 450000 Machine hours 9000 Hour 50
Setup & Inspection 180000 Number of production
runs 40 Run 4500
Engineering 90000 Engineering change
orders 100 Change
Orders 900
Plant Related Costs 96000 Square footage of space 1920 Sq. Ft 50
c.
Calculation of Product cost using Activity Based Costing:
Particulars Over Activit Cost Activit Cost

Head
rate
per
unit
y Unit
for
Fred
per
unit for
Fred
y Unit
for
Martha
per
unit for
Martha
Production units 1000 5000
Direct material cost per unit 40 60
Direct labours cost per unit 30 45
Manufacturing Overhead-
- Machine Related Costs 50 4 200 1 50
- Setup & Inspection 4500 50 90 250 18
- Engineering 900 0.075 67.5 0.005 4.5
- Plant Related Costs 50 1.536 76.8 0.0768 3.84
TOTAL COST PER UNIT 504.3 181.34
d.
Calculation of Product Price:
Particulars Fred Martha
Total Manufacturing Cost per Unit 504.30 181.34
Price per unit (120% of total manufacturing cost) 605.16 217.61

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