TOPIC: Activity Based Costing

640 CHAPTER 13 STRATEGIC MANAGEMENT ACCOUNTING believes it would have to bring the average construction time to less than one year (52 weeks) per bridge to eam a sufficient return on investment. The average construction time will follow an 80% learning curve Required: Compute the number of additional bridges the crew must build to bring the average construction time for all bridges constructed) below one year per bridge icma Activity based costing. Apollo ple manufactures and sells several products, two of which are Alpha and Beta a. Estimated data for the two products for the forthcoming period is as follows: Product data Alpha Beta Other products Production/sales units 5.000 10.000 40.000 PODO PODO PODO Total direct material cost 300 2,020 Total direct labour cost 100 660 b. C d. Variable overhead cost is P1,500,000 of which 40 percent is related to the acquisition storage and use of direct materials and the remainder is related to the control and use of direct labour is current practice for Apollo ple to absorb the two types of variable overhead cost to products using an overall company-wide percentage based on either direct material cost and direct labor cost as appropriate Apollo are considering the use of activity-based costing. The drivers for material and labor related overheads have been identified as follows: Alpha Beta Other products Weight of material/unit 4 1 1.5 Labour operations/unit 1 2 Direct material related overhead-cost driver is weight of material Direct labour related overheads-cost driver is number of labour operations e Market investment indicates that market prices for Alpha and Beta of P75 and P95 per unit respectively will achieve the estimated sales shown in (a) above Apollo plc requires a minimum estimated contribution/sales ratio of 40 percent before proceeding with the production or sale of any product f. Required: 1Prepare estimated unit product costs for Alpha and Beta where the variable overhead is charged to product units as follows: a. using the existing absorption rates as detailed above, b. using an activity-based costing approach 2 Using the information in (1) prepare an analysis that will help Apollo determine whether both Alpha and Beta should remain in production (cima) Mahathat a