1. Revenue calculation. 2. Calculation of The activity rate for each activity cost pool. 3. Computation of the the total activity costs for A and B
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
ASTER plc manufacturers product A and B. The following information is available form the company:
|
Position |
Product A |
Product B |
|
Units produced |
6,000 |
22,000 |
|
Selling price |
430 |
220 |
|
Direct materials and labour per unit |
200 |
80 |
|
Direct Labour hours |
25,000 |
75,000 |
|
Direct labour hours per unit |
5 |
3,75 |
The company has a total budgeted overhead of £2 milion. The following details are also available about
|
Position |
Budgeted cost (£) |
|
Engineering |
130,000 |
|
Set-ups |
300.000 |
|
Machine running |
1,500,000 |
|
Packing |
75,000 |
|
Total |
2,000,000 |
Additional data:
|
Cost Driver |
Product A |
Product B |
|
Engineering hours |
5,000 |
7,500 |
|
Number of set ups |
200 |
100 |
|
Machine hours |
50,000 |
100,000 |
|
Number of packing orders |
5,000 |
10,000 |
Required:
You are required to allocate overheads using both traditional and ABC costing system. Prepare short overhead report. Includ in your solution following issues:
1. Revenue calculation.
2. Calculation of The activity rate for each activity cost pool.
3. Computation of the the total activity costs for A and B.
4. Preparation of the profitability report by using traditional and ABC approach.
5. Compare and discuss the results. Provide potentail recomendation.
6. Please list Activity-based costing advantages.
Step by step
Solved in 2 steps
