Hallett Penumbra Systems produces a range of building products at several factories. The companys directors have decided
Question:
A unit of product C uses one machine hour, whereas a unit of product D uses 1.4 machine hours. One unit of C has a prime cost of €28.50, and a unit of D has a prime cost of €32.70.
Required:
a) calculate the overhead absorption rate based on the company’s traditional system of using machine hours as a basis for overhead absorption
b) calculate the overhead per unit of product C and product D using the data provided for the new ABC system
c) calculate the production cost of one unit of product C and one unit of product D under the old and new costing systems
d) explain the principal reasons for the difference in the product costs produced by the old and the new costing systems.
Financial Accounting and Reporting
ISBN: 978-1292162409
18th edition
Authors: Barry Elliott, Jamie Elliott