Jackson Ltd - continued: The finance office (cost and management accounts) recently performed an 'activity-based' production...

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Jackson Ltd - continued: The finance office (cost and management accounts) recently performed an 'activity-based' production systems analysis for the fixed production overheads. The result is the table below: Set up costs Production scheduling Quality control Depreciation Raw materials storage Total: Order / product: Set ups Inspections Machine hours Cost £ Materials movements 8,000 Set ups 1,600 Set ups 18,000 Inspections 8,000 Machine hours 2,400 Materials movements 38,000 Cost driver Order 1101 'A' 50 700 300 700 Order 1102 'B' Total cost driver quantity per period A further analysis has produced the following indirect production overhead resource required for each product: Activity-Based Resource (Cost driver quantity) Requirement (by product) 20 500 200 300 100 100 2,250 800 1,200 Order 1103 'C' Indirect production overhead 30 1,000 300 400 recovery rate £ 80.00 16.00 8.00 10.00 2.00 Total 100 2,200 800 1,400 b. Recalculate the gross profits (by product an in total) after allocating fixed production overheads to products using an activity based system 10 Marks The task 5 b. mark include marks allocated to short descriptive notes to workings (<=100 words). These should be 'short explanatory notes' that will serve to identify (observe) the effects on each product (and in total) profit caused by the ABC system allocations. The answer is in two parts and the following method Task: Overhead recovery (ABC System) Set-Ups Inspections Machine hours Materials movements 5.b. Driver Qty Jackson Ltd Recalculate gross profit (and margin) after allocating fixed production overheads using an ABC system (To max 6 marks) Order 1101 'A' Recovery rate £ Total overheads: Profits (Marginal / ABC): Sales Less variable cost of sales Overhead Driver £ Qty Contribution: Less Fixed costs (ABC) Profits (Marginal / ABC): Profit margin on sales (%) Order 1102 'B' Recovery rate £ Total overheads: Order 1101 'A' £ Overhead Driver £ Qty Order 1102 'B' £ Order 1103 'C' £ Notes to Marginal / ABC profits (Workings / Observations - To max 4 marks): Order 1103 'C' Recovery rate £ Total overheads: Total £ Overhead £ Jackson Ltd - continued: The finance office (cost and management accounts) recently performed an 'activity-based' production systems analysis for the fixed production overheads. The result is the table below: Set up costs Production scheduling Quality control Depreciation Raw materials storage Total: Order / product: Set ups Inspections Machine hours Cost £ Materials movements 8,000 Set ups 1,600 Set ups 18,000 Inspections 8,000 Machine hours 2,400 Materials movements 38,000 Cost driver Order 1101 'A' 50 700 300 700 Order 1102 'B' Total cost driver quantity per period A further analysis has produced the following indirect production overhead resource required for each product: Activity-Based Resource (Cost driver quantity) Requirement (by product) 20 500 200 300 100 100 2,250 800 1,200 Order 1103 'C' Indirect production overhead 30 1,000 300 400 recovery rate £ 80.00 16.00 8.00 10.00 2.00 Total 100 2,200 800 1,400 b. Recalculate the gross profits (by product an in total) after allocating fixed production overheads to products using an activity based system 10 Marks The task 5 b. mark include marks allocated to short descriptive notes to workings (<=100 words). These should be 'short explanatory notes' that will serve to identify (observe) the effects on each product (and in total) profit caused by the ABC system allocations. The answer is in two parts and the following method Task: Overhead recovery (ABC System) Set-Ups Inspections Machine hours Materials movements 5.b. Driver Qty Jackson Ltd Recalculate gross profit (and margin) after allocating fixed production overheads using an ABC system (To max 6 marks) Order 1101 'A' Recovery rate £ Total overheads: Profits (Marginal / ABC): Sales Less variable cost of sales Overhead Driver £ Qty Contribution: Less Fixed costs (ABC) Profits (Marginal / ABC): Profit margin on sales (%) Order 1102 'B' Recovery rate £ Total overheads: Order 1101 'A' £ Overhead Driver £ Qty Order 1102 'B' £ Order 1103 'C' £ Notes to Marginal / ABC profits (Workings / Observations - To max 4 marks): Order 1103 'C' Recovery rate £ Total overheads: Total £ Overhead £

Answer rating: 100% (QA)

To recalculate the gross profits using an activitybased costing ABC system we need to allocate the fixed production overheads to each product based on ... View the full answer