Accounting for Managers: Interpreting accounting information for decision-making

SOLUTIONS TO QUESTIONS 425

If £120,000 of costs were recovered over the number of units produced (20, 000 + 20 , 000 =
40 ,000), the purchasing cost per unit would be £3 (£120,000/40,000 units) for both L and M.

11.7
Purchasing Quality control Despatch
Total cost £60, 000 £40, 000 £30, 000
Driver 12,000 4,000 2,000
Cost/driver £5 £10 £15
Hekla uses 5 8 2
Overhead £25 £80 £30

Total overhead £25+ 80 + 30 =£135

Direct materials £100

Direct labour £75

Total cost £310

11.8

(a) Cost pool Estimated Expected activity
cost X Y Total Cost/activity
Activity 1 £12, 000 300 500 800 12 , 000 / 750 =£15
Activity 2 £15, 000 100 400 500 15 , 000 / 500 =£30
Activity 3 £32, 000 400 1,200 1,600 32 , 000 / 1 , 600 =£20

X 300 @ 15= 4,500 Y 500 @ 15= 7,500

100 @ 30= 3,000 400 @ 30= 12,000

400 @ 20= 8,000 1,200 @ 20= 24,000

15,500 43,500

Units 3,000 2,000

Overhead cost per unit £5.17 £21.75

(b) X Y
Units 3,000 2,000
Machine hours 5 5
Total machine hours 15,000 10,000 25,000
Hourly rate £59, 000 / 25 , 000 =£2.36 per hour

Overhead cost 5 @ 2.36 5 @ 2.36

Overhead cost per unit £11.80 £11.80

11.9
Traditional absorption costing

Machining overheads:

Widgets 50 , 000 ×2@£1. 20 120,000

Gadgets 40 , 000 × 5 ×£1. 20 240,000

Helios 30 , 000 ×4@£1. 20 144,000