Modern Products Company is applying activity based costing on its products costing. In this context the following
Question:
Modern Products Company is applying activity based costing on its products costing. In this context the following data has been extracted from its cost accounting record:
Wages and salaries Rs. 600,000
Other overheads cost Rs. 200,000
Total Rs. 800,000
Activity cost pool Activity drivers Total activity
Supporting direct labour Number of direct labour 10,000 direct labour hours
Order processing Number of customer orders 200 orders
Customers support Number of customers 100 customers
Distribution of resources utilization was as under:
Supporting Order Customer Total
Directlabour processing support
Wages and Salaries 50% 30% 20% 100%
Other overheads cost 40% 30% 30% 100%
During current month the company has executed one order for a new customer namely Ali Traders. This customer did not order any other products during the period. The salient data concerning the foregoing customer is as under:
Units ordered 20 units
Direct labour hours 4 hours per unit
Selling price Rs. 1,000 per unit
Direct material cost Rs. 300 per unit
Direct labour Rs. 100 per unit
Required
a. Compute the allocation of overheads cost to activity cost pools.
b. Determine the activity rates of each cost pool.
c. Allocate the overheads cost to the customer- Ali Traders for execution of his order.
d. Draw a customer margin report in respect of Ali Traders.
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver