Accounting for Managers: Interpreting accounting information for decision-making

396 ACCOUNTING FOR MANAGERS

Calculate the cost per unit of Product A and Product B under activity-based

costing.

11.5 Cooper’s Components uses an activity-based costing system for its product

costing. For the last quarter, the following data relates to costs, output volume and

cost drivers:

Overhead Costs £

Machinery 172,000

Set-ups 66,000

Materials handling 45,000

Total 283,000

Product A B C

Production and sales 4,000 units 3,000 units 2,000 units

Number of production runs 12 5 8

Number of stores orders 12 6 4

per unit per unit per unit

Direct costs £25 £35 £15

Machinehours 523

Direct labour hours 4 2 4

a If set-up costs are driven by the number of production runs, what is the set-up
cost per unit traced to product A?
b If materials handling costs are driven by the number of stores orders, what is
the materials handling cost per unit traced to product B?

11.6 Elandem PLC produces 20,000 units of Product L and 20,000 units of

Product M. Under activity-based costing, £120,000 of costs are purchasing related.

If 240 purchase orders are produced each period, and the number of orders used

by each product is:

Product L Product M

No. of orders 80 160

žCalculate the per-unit activity-based cost of purchasing for Products L and M.

žCalculate the overhead recovery for purchasing costs if those costs were

recovered over the number of units of the product produced.

11.7 Heated Tools Ltd uses activity-based costing. It has identified three cost

pools and their drivers as follows:

Purchasing Quality control Despatch

Cost pool £60,000 £40,000 £30,000

Driver 12,000 4,000 2,000

Purchase orders Stores issues Deliveries