398 ACCOUNTING FOR MANAGERS
Table A1.5 Brixton Industries activity cost pools and drivers
Cost pool £ Cost Cost driver Quantity
Machining services 357,000 Machine hours 420,000
Assembly services 318,000 Direct labour hours 530,000
Set-up costs 26,000 Set-ups 520
Order processing 156,000 Customer orders 32,000
Purchasing 84,000 Supplier orders 11,200Table A1.6 Brixton Industries estimates
Widgets Gadgets Helios
Number of set-ups 120 200 200
Customer orders 8,000 8,000 16,000
Supplier orders 3,000 4,000 4,200žPrepare and present a profit calculation showing the profitability of each
product using traditional absorption costing.
žPrepare and present a profit calculation showing the profitability of each
product using activity-based costing.
žExplain the differences between the product profitability using absorption and
activity-based costing.
11.10 Klingon Holdings has prepared a marketing study that shows the following
demand and average price for each of its services for the following period:
ABC
Volume 150,000 200,000 350,000
Estimated selling price per unit £50 £35 £25
The variable costs for each of
these services is:£20 £17 £14
Fixed expenses have been budgeted as £6,900,000.
Using the above information:
žCalculate the contribution per unit of volume (and in total) for each service.
Which is the preferred service? Why? What should the business strategy be?
žDetermine the absorption (full) cost per unit for the three services using three
different methods of allocating overheads.
žHow do the results of these different methods compare?
žAssuming a constant mix of the services sold, calculate the breakeven point for
the business.