Alpha Ltd produces two products: A and B. The company produces both products with the same equipment.
Question:
Alpha Ltd produces two products: A and B. The company produces both products with the same equipment. Product B is a high volume product while product A is produced in low volumes. Details of cost of activities, inputs, and output are as follows:
Overhead cost analysis $
Material handling 150 000
Material procurement 50 000
Set-up 150 000
Quality control 250 000
Production 600 000
Product B: 20 000 units
The production manager has recently attended a workshop on cost reduction measures. One of the topics that featured prominently in the workshop was the importance of using Activity Based Costing (ABC) over the traditional absorption costing system.
The production manager has requested you to assist with the following:
1. To determine the overhead cost per product using a traditional absorption costing system.
2. To determine the overhead cost per product using ABC system.
3. How does the use of ABC system affect your answers.
Process Dynamics And Control
ISBN: 978-0471000778
2nd Edition
Authors: Dale E. Seborg, Thomas F. Edgar, Duncan A. Mellich