Unit: Management accounting
Sign in to download the full Topic PDF and enable offline revision mode.
Login to Access| Product................................... | Sofa.sets | Tables | Beds | Total |
| Production and sales (units) | 1,000 | 2,000 | 800 | |
| Direct material cost per unit | Sh.4,500 | Sh.2,000 | Sh.3,100 | Sh.10,980,000 |
| Direct labour hours per unit | 2.5 | 2 | 3 | 8,900 |
| Machine hours per unit | 1.5 | 1 | 2 | 5,100 |
| Direct labour cost per hour | Sh.1,000 | Sh.800 | Sh.750 | |
| Cost drivers: | ||||
| Number of production runs | 3 | 7 | 20 | 30 |
| Number of deliveries | 30 | 20 | 50 | 100 |
| Number of requisitions raised | 15 | 35 | 220 | 270 |
| Number of orders executed | 15 | 10 | 25 | 50 |
| 1 | The company operates a just in time (JIT) inventory policy and receives each component once per production run |
| 2 | Currently, production overheads are allocated based on direct labour hours absorption basis. |
| 3 | Susana Njeri, the company management accountant has recently attended a conference on activity-based costing (ABC) system where she learnt that overheads costs can be analysed by the major activities in order to compute the activity-based costs. Therefore, she proposed the adoption of activity-based costing (ABC) technique. |
| 4 | The production overheads for the period have been analysed as follows together with their cost drivers: |
| Production overhead cost | Cost driver | Sh. | |
| Set up costs | Number of production runs | 300,000 | |
| Machining costs | Number of machine hours | 1,122,000 | |
| Requisition costs | Number of requisitions raised | 1,350,000 | |
| Inspection costs | Number of deliveries | 1,493,000 | |
| Material handling costs | Number of orders executed | 1,075,000 | |
| 5,340,000 |
| Model................................... | Regular... | Medium..... | Deluxe |
| Direct material cost per unit | Sh.2,500 | Sh.3,250 | Sh.5,500 |
| Direct labour hours per unit | 0.75hours | 1.5 hours | 1 hour |
| Machine hours per unit | 1.5 hours | 1 hour | 3 hours |
| Production volume | 800 units | 1,200 units | 4,800.units |
| 1 | The total cost per unit is loaded a profit markup of 20% to determine the selling price |
| 2 | Direct labour cost is Sh.2,100 per labour hour |
| 3 | Currently, production overheads are absorbed based on a blanket-wise machine hour absorption costing basis. The rate for the period is Sh.1,500 per machine hour. |
| 4 | Budgeted annual production overheads for Aquatiq Ltd. amounted to Sh.25,200,000. Further analysis shows that the production overheads can be apportioned according to activity based costing (ABC) approach as follows: |
| 4 | Cost pools | Apportionment | Cost driver |
| Set-up costs | 40% | Number of set-ups | |
| Machine costs | 20% | Number of machine hours | |
| Material procurement cost | 10% | Number of orders | |
| Quality control cost | 30% | Number of inspections | |
| 100% |
| 5 | The following cost drivers are associated with the models: |
| 5 | Model | Regular | Medium | Deluxe |
| Number of set-ups | 64 | 120 | 320 | |
| Number of orders | 12 | 21 | 87 | |
| Number of inspections | 120 | 180 | 456 | |
| Number of machine hours | 1,200 | 1,200 | 14,400 |
| Product | A01 | B02 | C03 | D04 | Total |
| Output units | 1,200 units | 1,000 units | 800 units | 1,200 units | 4,200 units |
| Machine hours per unit | 4 hours | 3 hours | 2 hours | 3 hours | 12 hours |
| Production runs | 6 | 5 | 4 | 6 | 21 |
| Requisitions raised | 20 | 20 | 20 | 20 | 80 |
| Orders executed | 12 | 10 | 8 | 12 | 42 |
Cost per unit: | Sh. | Sh. | Sh. | Sh. | |
| Direct material | 3,300 | 4,125 | 2,475 | 4,950 | |
| Direct labour | 2,310 | 1,980 | 1,155 | 1,815 |
| 1 | Currently production overheads are absorbed based on conventional machine hour basis although the management is proposing the adoption of activity-based costing (ABC) technique. |
| 2 | The production overheads for the period have been analysed as follows together with ABC cost drivers: |
| Cost element | Sh. “000” | Cost driver | |
| Machinery cost centre | 10,430 | Total machine hours | |
| Set-up costs | 5,250 | Number of production runs | |
| Stores receiving costs | 3,600 | Requisitions raised | |
| Inspection costs | 2,100 | Number of production runs | |
| Material handling costs | 4,620 | Orders executed | |
| 26,000 |
Units produced and sold | T 12,000 | Q 16,000 | M 8,000 |
| Sh. | Sh. | Sh. | |
| Sales price per unit | 50 | 70 | 60 |
| Direct material cost per unit | 16 | 24 | 20 |
| Direct labour cost per unit | 8 | 12 | 8 |
| Production overheads costs | Total Sh. | Cost drivers |
| Machining costs | 102,000 | Machine hours |
| Production scheduling | 84,000 | Number of production runs |
| Set-up costs | 54,000 | Number of production runs |
| Quality control | 49,200 | Number of production runs |
| Receiving materials | 64,800 | Number of component receipts |
| Packing materials | 36,000 | Number of customer orders |
| 390,000 |
| T | Q | M | |
| Direct labour hours per unit | 1 | 1\(\frac{1}{2}\) | 1 |
| Machine hours per unit | \(\frac{1}{2}\) | 1 | \(1\frac{1}{2}\) |
| Number of components per unit | 3 | 5 | 8 |
| Number of component receipts | 18 | 80 | 64 |
| Number of customer orders | 6 | 20 | 10 |
| Number of production runs | 6 | 16 | 18 |
| W Sh. per unit | X Sh. per unit | Y Sh. per unit | |
| Selling price | 200 | 183 | 175 |
| Direct materials | 50 | 40 | 35 |
| Direct labour | 30 | 35 | 30 |
| Units produced and sold | 10,000 | 15,000 | 18,000 |
| 1 | The total number of activities for each of the three products for the period is as follows: |
| 1 | Product | |||
| W | X | Y | ||
| Number of purchase requisitions | 1,200 | 1,800 | 2,000 | |
| Number of set ups | 240 | 260 | 300 |
| 2 | Overhead costs have been analysed as follows: | |
| Receiving/ inspecting quality assurance | Sh.1,400,000 | |
| Production scheduling/ machine set up | Sh.1,200,000 |
| Batch | A | B | C | D |
| Output in units | 250 | 60 | 200 | 120 |
| Cost per batch: | Sh. | Sh. | Sh. | Sh. |
| Direct materials | 1,650 | 750 | 750 | 900 |
| Direct labour | 9,200 | 1,520 | 6,880 | 2,400 |
| Labour hours per batch | 1,150 | 190 | 860 | 300 |
| 1 | The total production overheads for the month of June 2021 has been analysed as follows: |
| Sh. | ||
| Machine related cost | 14,600 | |
| Material handling and dispatch | 6,800 | |
| Stores | 8,250 | |
| Inspection/quality control | 5,850 | |
| Set-ups | 6,200 | |
| Engineering support | 8,300 |
| 2 | The following cost driver volumes were recorded for the four batches: |
| Batch | A | B | C | D | Total | |
| Machine hours per batch | 520 | 255 | 610 | 325 | 1,710 | |
| Material movements | 180 | 70 | 205 | 40 | 495 | |
| Requisitions | 40 | 21 | 43 | 26 | 130 | |
| Inspections | 18 | 8 | 13 | 8 | 47 | |
| Set-ups | 12 | 7 | 16 | 8 | 43 | |
| Engineering hours | 65 | 38 | 52 | 35 | 190 |
| Product | |||
| A | B | C | |
| Labour hours per unit | 2 | 3 | 1 |
| Machine hours per unit | 3 | 2 | 5 |
| Material cost per unit (Sh.) | 45 | 28 | 52 |
| Volume (Units) | 1,500 | 2,400 | 11,000 |
| 1 | Direct labour costs are Sh. 14 per hour. |
| 2 | Production overheads are absorbed on a material cost percentage basis. |
| 3 | The machine rate for the period under consideration is Sh.56 per machine hour. |
| 4 | Further analysis shows that the total production overheads could be apportioned as follows: |
| o Cost relating to set-ups | 20% | |
| o Cost relating to materials movement | 35% | |
| o Cost relating to inspection | 45% |
| 5 | The following activity volumes are associated with the product line for the period: |
| Total activities for the period | |||
| Number of set-ups | Number of material movements | Number of inspections | |
| Product: A B C | 78 112 460 650 | 12 21 82 115 | 140 170 640 950 |
| Department | Factory overheads |
| Sh. | |
| Production support | 1,225,000 |
| Production (factory overheads only) | 175,000 |
| Totai cost | 1,400,000 |
| Production support activities | Budgeted cost |
| Sh. | |
| Set-up | 428,750 |
| Production control | 245,000 |
| Quality control | 183,750 |
| Materials management | 367,500 |
| Total | 1,225,000 |
| Product | Number.of Units | Direct.Labour hours | Set-ups | Production orders | Inspections | Material requisitions |
| Product K | 10,000 | 25,000 | 80 | 80 | 35 | 320 |
| Product L | 2,000 | 10,000 | 40 | 40 | 40 | 400 |
| Product M | 50,000 | 140,000 | 5 | 5 | 0 | 30 |
| Total | 62,000 | 175,000 | 125 | 125 | 75 | 750 |
| Batch Output in units Cost per batch Direct labour (Sh.) Direct materials (Sh.) Labour.hours.per.batch | P 2,500 92,000 16,500 11,500 | Ο 600 15,200 7,500 1,900 | R 2,000 68,800 21,000 8,600 | S 1,200 24,000 9,000 3,000 |
| Particulars Stores Inspection Set-up Engineering support Machine related costs Materials dispatch | Cost(Sh.) 82,500 58,500 62,000 83,000 146,000 68,000 500,000 | Cost driver Number.of.requisitions Number of inspections Number of set-ups Engineering hours Machine hours Materials movements |
Requisitions Inspections Setups Engineering hours Machine hours Materials.movement | P 400 180 120 650 5,200 1,800 | Q 210 80 70 380 2,550 700 | R 430 130 160 520 6,100 2,050 | S 260 80 80 350 3,250 400 | Total 1,300 470 430 1,900 17,100 4,950 |