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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. 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%

 

  1. 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%

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