QUESTION 2 MHM Manufacturing Company is currently engaged in the production of three products; A, B...

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QUESTION 2 MHM Manufacturing Company is currently engaged in the production of three products; A, B and C. These products use the same raw materials, though the consumption of quantity differs. Details of quantity required to each product in terms unit and labour hours provided as below: A Direct Material (Units consumed) Direct Labour ((No. of hours) C 2 3 4 2 3 Direct materials cost RO 3.2 per unit while the direct labour costs are RO 2.5 per hour. For many years, the company has been using absorption costing for allocating overheads. The basis of allocation used was the total labour hours. The budgeted production of these products are given below A. C Budgeted Production 5,000 6,000 10,000 Details of overhead are given below. Machine Set Up Costs Procurement expenses Machine running costs After Sales Support Total 25,000 30,000 55,000 20,000 Details of the cost drivers are given below; A B 30 30 No. of machine set up No. of purchase orders Machine hours per unit No. of visits to the customer 40 300 400 300 2 4 100 150 50 You are required to calculate: - a. Cost per unit for each product using Absorption costing b. Cost per unit for each product using ABC c. Identify products for which under costing and/or over costing is observed. [5 Marks] QUESTION 2 MHM Manufacturing Company is currently engaged in the production of three products; A, B and C. These products use the same raw materials, though the consumption of quantity differs. Details of quantity required to each product in terms unit and labour hours provided as below: A Direct Material (Units consumed) Direct Labour ((No. of hours) C 2 3 4 2 3 Direct materials cost RO 3.2 per unit while the direct labour costs are RO 2.5 per hour. For many years, the company has been using absorption costing for allocating overheads. The basis of allocation used was the total labour hours. The budgeted production of these products are given below A. C Budgeted Production 5,000 6,000 10,000 Details of overhead are given below. Machine Set Up Costs Procurement expenses Machine running costs After Sales Support Total 25,000 30,000 55,000 20,000 Details of the cost drivers are given below; A B 30 30 No. of machine set up No. of purchase orders Machine hours per unit No. of visits to the customer 40 300 400 300 2 4 100 150 50 You are required to calculate: - a. Cost per unit for each product using Absorption costing b. Cost per unit for each product using ABC c. Identify products for which under costing and/or over costing is observed. [5 Marks]

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1 Statement Showing Cost Per Unit Description A B C Direct Materials 640 960 1280 A 2 X 320 B 3 X 320 C 4 X 320 Direct Labour 500 750 500 A 2 X 250 B ... View the full answer