QUESTION SEVEN Kasama Ltd manufactures two products (Pa and Ta) using similar methods and equipment. The...

 

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QUESTION SEVEN Kasama Ltd manufactures two products (Pa and Ta) using similar methods and equipment. The company absorbs overheads into product costs using absorption costing based on labour hours. Having attended a workshop on Activity Based Costing (ABC), the company's cost accountant has recommended the adoption of ABC in absorbing overheads into product costs. Data for the two products in the last period: Units Produced Direct material cost per unit Direct labour cost per unit (K10/hour) Machine hours per unit Set-ups in period Orders handled in the period Overheads for period Relating to production set-ups Relating to order handling Relating to machine activity Pa 3,000 24 20 8 32 36 K 350 000 80 000 150 000 580 000 Ta 4,000 16 40 6 68 124 Required: (a) Outline any four (4) reasons for the use of Activity Based Costing (ABC) and not the conventional absorption costing in absorbing overheads into product costs (8 marks) (b) Calculate the total production cost per unit for each product based on ABC approach using suitable cost drivers. (12 marks) [Total: 20 marks] QUESTION SEVEN Kasama Ltd manufactures two products (Pa and Ta) using similar methods and equipment. The company absorbs overheads into product costs using absorption costing based on labour hours. Having attended a workshop on Activity Based Costing (ABC), the company's cost accountant has recommended the adoption of ABC in absorbing overheads into product costs. Data for the two products in the last period: Units Produced Direct material cost per unit Direct labour cost per unit (K10/hour) Machine hours per unit Set-ups in period Orders handled in the period Overheads for period Relating to production set-ups Relating to order handling Relating to machine activity Pa 3,000 24 20 8 32 36 K 350 000 80 000 150 000 580 000 Ta 4,000 16 40 6 68 124 Required: (a) Outline any four (4) reasons for the use of Activity Based Costing (ABC) and not the conventional absorption costing in absorbing overheads into product costs (8 marks) (b) Calculate the total production cost per unit for each product based on ABC approach using suitable cost drivers. (12 marks) [Total: 20 marks]

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