Paper, Order, or Assignment Requirements
ASB 4420 Assignment
You have been appointed as the management accountant at Riptide Plc and have been asked to provide information on overhead absorption.
The following budgeted information relates to the forthcoming period:
| Products | |||
| XYI (000) |
YZT (000) |
ABW (000) |
|
| Sales and production (units) | 50 | 40 | 30 |
| £ | £ | £ | |
| Selling price (per unit) | 45 | 95 | 73 |
| Variable cost (per unit) | 32 | 84 | 65 |
| Hours | Hours | Hours | |
| Machine department (machine hours per unit) | 2 | 5 | 4 |
| Assembly department (direct labour hours per unit) | 7 | 3 | 2 |
Overheads allocated and apportioned to production departments were as follows:
Machine department £504,000
Assembly department £437,000
You ascertain that the above overheads could be re-analysed into ‘cost pools’ as follows:
| Cost pool | £000 | Cost driver | Quantity for the period |
| Machining services | 357 | Machine hours | 420,000 |
| Assembly services | 318 | Direct labour hours | 530,000 |
| Set-up costs | 26 | Set-ups | 520 |
| Order processing | 156 | Customer orders | 32,000 |
| Purchasing | 84
___ |
Suppliers’ orders | 11,200 |
| 941
___ |
You have also been provided with the following estimates for the budget period:
| Products | |||
| XYI | YZT | ABW | |
| Number of set-ups | 120 | 200 | 200 |
| Customer orders | 8,000 | 8,000 | 16,000 |
| Suppliers’ orders | 3,000 | 4,000 | 4,200 |
Required:
- 1. Prepare and present budgeted profit statements using:
(a) conventional absorption costing; and 15%
(b) activity based costing (ABC) 30%
(c) Comment on these results. 15%
- The Managing Director at Riptide plc has commented to you that he believes that Activity Based Costing is often implemented because it’s fashionable and not because it provides extra information to management.
Discuss the above statement. 40%