ACCT 322 Saudi Electronic University Traditional Costing System Discussion

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Business Finance

ACCT 322

Saudi electronic university

ACCT

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- mention question number clearly in their answer. - All answered please be typed using Times New Roman (size 12, double-spaced) font. - Thanks. Assignment Questions ABC Corporation makes three types of products and currently uses traditional product costing system. The management is considering using activity based costing. Below is the details on the tree products (2.5 marks) Products Labor hour per unit Machine Material Volume of productions hours per cost per unit (Units) unit SR Product A 1.5 0.5 20 1,000 Product B 1 1.5 25 5,000 Product C 0.5 1.0 30 1,500 Total manufacturing overhead are SR 750,000. In- depth analysis for overheads has been done to apply activity based costing as follows: Activity’s Overheads cost pool 150,000 200,000 125,000 275,000 750,000 Activities Set- ups Machinery Material handling Inspection Total The actual quantity used of activities by products as follows: Products Set- ups Product A Product B Product C Total 100 120 300 520 Machinery (hours) 500 7,500 1,500 9,500 Material handling 15 30 90 135 Inspection 20 150 700 870 Direct labor rate is SR 5 per hour and overhead allocated to products under traditional costing system using machine hour as allocation base. Required: 1- Calculate cost per unit per each product under traditional costing system. 2- Calculate cost per unit per each product under activity based costing. 3- Comment on results. Answer: 2. In 2020, ABC Company produces a single product with the following information: (2.5 marks) Variable cost per unit: Direct martial PER UNIT Direct labor per unit Manufacturing over head Variable selling expense per units sold Additional information: Fixed manufacturing costs per year Fixed selling and administrating expenses per year Number of units produced Selling price per unit Required: SR 8 10 5 2 SR 150,000 150,000 20,000 50 1- Prepare income statement using absorption costing and variable costing assuming all 20,000 units sold. 2- Prepare income statement using absorption costing and variable costing assuming all 15,000 units sold and 5,000 units unsold. 3- Comment on results explaining which costing method produces more profit in case of inventory. Answer:
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Explanation & Answer

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1

Assignment

Student’s Name
Institution
Course Code: Course Name
Instructor’s Name
Date

2
QUESTION ONE
Part 1
Using the traditional costing system,
Rate of overhead allocation = Total manufacturing overheads / Total machine hours
=SR 750,000/9,500 hrs
= 78.95 SR/hr
Product A

Product B

Product C

Material cost/unit

20

25

30

Labor cost/unit (direct labor rate*direct

7.5

5

2.5

labor hours)

(5*1.5)

(5*1)

(5*0.5)

Overhead allocation (machine hours per

39.475

118.475

78.95

unit*overhead allocation rate)

(78.95*0.5)

(78.95*1.5)

(78.95*1)

The total cost = material cost per unit + Labour cost per unit + overheads allocated.
Total cost for;
Product A= 20 + 7.5 + 39.475 = SR 66.975
Product B = 25 + 5 + 118.425 = SR 148.425
Product C = 30 + 2.5 + 78.95 = SR 111.45
Product A
Overhead allocated= machine hours * overhead allocation rate
= 500hrs * 78.95 SR/hr = 39,475 SR
Overhead allocated per unit = Overhead allocated / volume of production.
= 39,475 /1,000 = 39.475 SR

3
Product B
Overhead allocated= machine hour...


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