Question 2

ABC Ltd. has a single manufacturing process of which the following overhead cost estimates are available for the period ending 31 December 20X2:

	R
Raw materials receiving and inspection cost	18 720
Electricity	23 400
Materials handling cost	16 380
Total	58 500

Three products, namely A, B and C, are manufactured by labourers. The raw material arrives in bundles and is then processed further using electrical drills, which are operated by hand. The labourers are paid a wage of R50 per hour. The following estimates are applicable for the period ending 31 December 20X2:

	Product A	Product B	Product C
Units manufactured	2 200	1 650	880
Raw material received (total bundles)	11,00	6,00	18,00
Data per manufactured unit:
Direct material (m2)	4,00	6,00	3,00
Direct material (R)	6,50	3,90	7,80
Direct labour (minutes of drilling)	24,00	40,00	60,00
Number of electric drilling jobs	7,00	4,00	3,00

Overheads are currently allocated to products by means of a rate based on labour hours. An activity-based investigation identified the following cost drivers:

Activity cost pool	Cost drivers
Material receiving and inspection	Number of material bundles
Electricity	Number of drilling jobs
Material handling	m2 handled

Round off all your figures to two decimal places.

2.1

Prepare a summary for the budgeted product cost per unit for each product (A, B and C) for the period ending 31 December 20X2, where the unit cost for each of the cost elements is set out:

In terms of the current method of overhead allocation

(8 marks)

2.2

Prepare a summary for the budgeted product cost per unit for each product (A, B and C) for the period ending 31 December 20X2, where the unit cost for each of the cost elements is set out by using the identified cost drivers and on the basis of ABC principles

(12 marks)