XYZ (Pty) Ltd is a company making three products namely, product A, B and C. XYZ (Pty) Ltd has been incurring large losses on products B and C compared to product A. The losses have been a concern to each product’s line management since their performance bonus is based on the Return on Assets (ROA). All three product have similar prime costs. However, while going through their financial records, using the traditional method of allocating manufacturing overheads where manufacturing machine hours are used as the cost driver, you discovered that fixed costs are much higher for product B and C compared to product A.

You are provided with the following information regarding the three products:

	Product A	Product B	Product C
Annual production (units)	65 000	102 000	80 000
Batch size (units)	20	25	100
Number of machine set-ups per batch	7	2	4
Number of inspections per batch	6	2	10
Machine hours per unit	15min	15min	25min
Manufacturing overheads	R340 000
% of annual machine set-ups costs to total overheads	40%
% of annual inspection costs to total manufacturing overheads	60%

Using the Activity Based Costing (ABC) principle of allocating overheads, calculate the total manufacturing cost allocated to each product produced by XYZ (Pty) Ltd.

Calculate the manufacturing overheads allocated to each product using the Traditional method of allocating overheads.

Round all your answer to nearest two decimals.

Overhead allocation to each each activity:

Machine set-up	RAnswer
Inspection	RAnswer

	Product A	Product B	Product C
Activity Based Costing
Machine set-up costs	RAnswer	RAnswer	RAnswer
Inspection costs	RAnswer	RAnswer	RAnswer
Total Manufacturing costs	RAnswer	RAnswer	RAnswer
Traditional method
Total number of machine hours	Answer hrs	Answer hrs	Answer hrs
Indirect cost using traditional method	RAnswer	RAnswer	RAnswer

Expert Answe

Answer rating: 100% (QA)

Answer Explanation Answer is given in 2 decimals as per requirement Overhead allocation to each acti... View the full answer