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    Question No-1-Solution Traditional Costing Method: Overhead Rate Per Machine Hours

    Uploaded by

    Riya Sharma
    The document provides information on calculating overhead costs using traditional costing and activity-based costing methods. Under traditional costing, total overhead costs are calculated and an overhead rate per machine hour is determined. Overhead costs are then assigned to Products A and B based on machine hours. Under activity-based costing, overhead costs are grouped into cost pools based on activities like setups, material handling, etc. Activity-based overhead rates are calculated per cost driver like per setup or production run. Overhead costs are then assigned to Products A through D and a cost per unit is calculated for each product based on its consumption of activities.

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    Question No-1-Solution Traditional Costing Method: Overhead Rate Per Machine Hours

    Uploaded by

    Riya Sharma
    206 views3 pages
    The document provides information on calculating overhead costs using traditional costing and activity-based costing methods. Under traditional costing, total overhead costs are calculated and an overhead rate per machine hour is determined. Overhead costs are then assigned to Products A and B based on machine hours. Under activity-based costing, overhead costs are grouped into cost pools based on activities like setups, material handling, etc. Activity-based overhead rates are calculated per cost driver like per setup or production run. Overhead costs are then assigned to Products A through D and a cost per unit is calculated for each product based on its consumption of activities.

    Original Description:

    Solution on ABC Costing Case study

    Original Title

    SOLUTION-ABC

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    The document provides information on calculating overhead costs using traditional costing and activity-based costing methods. Under traditional costing, total overhead costs are calculated and an overhead rate per machine hour is determined. Overhead costs are then assigned to Products A and B based on machine hours. Under activity-based costing, overhead costs are grouped into cost pools based on activities like setups, material handling, etc. Activity-based overhead rates are calculated per cost driver like per setup or production run. Overhead costs are then assigned to Products A through D and a cost per unit is calculated for each product based on its consumption of activities.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    206 views3 pages

    Question No-1-Solution Traditional Costing Method: Overhead Rate Per Machine Hours

    Uploaded by

    Riya Sharma
    The document provides information on calculating overhead costs using traditional costing and activity-based costing methods. Under traditional costing, total overhead costs are calculated and an overhead rate per machine hour is determined. Overhead costs are then assigned to Products A and B based on machine hours. Under activity-based costing, overhead costs are grouped into cost pools based on activities like setups, material handling, etc. Activity-based overhead rates are calculated per cost driver like per setup or production run. Overhead costs are then assigned to Products A through D and a cost per unit is calculated for each product based on its consumption of activities.

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    © All Rights Reserved
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    of 3

    Question no-1-Solution

    Traditional Costing Method


    Calculation of Total Overhead Cost
    Volume related activity costs Rs. 5,50,000
    Set up related activity costs Rs. 8,20,000
    Purchase related activity costs Rs. 6,18,000
    Total Overhead Cost Rs. 19,88,000

    Total no.of Machine hours – 20,000 + 120,000 = 144000 Machines Hours


    Total Overhead Cost 𝟏𝟗,𝟖𝟖,𝟎𝟎𝟎
    Overhead rate Per Machine Hours = Total no.of Machine hours = 144000
    = 𝑅𝑠. 14.20 𝑝𝑒𝑟 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟

    Statement Showing Overhead Cost per Unit


    Particulars A B
    Machine Hours 20,000 Hours 120,000 Hours
    Overhead Rate per Machine Hour Rs. 14.20 Rs. 14.20
    Total Overhead Cost assigned = Overhead Rs. 2,84,000 Rs. 17,04,000
    rate X No. of machine hours
    Outputs (units) 5,000 60,000
    Overhead cost per unit = Total overhead Rs. 56.80 Rs. 28.40
    cost assigned/ output

    Activity Costing Method


    Calculation of Activity Based Overhead Rates
    Activity Cost Cost Cost Drivers No. of Activity based rate
    Pool Cost
    Drivers
    Volume Rs. 5,50,000 No.of 140000 550000
    related Machine = 𝑅𝑠. 3.93 𝑝𝑒𝑟 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟
    140000
    activity costs hours
    Set up related Rs. 8,20,000 No. of set-ups 64 820000
    activity costs = 𝑅𝑠. 12,812.50 𝑝𝑒𝑟 𝑆𝑒𝑡𝑢𝑝
    64
    Purchase Rs. 6,18,000 No.of 544 618000
    related purchase 544
    activity costs orders = 𝑅𝑠. 1136.03 𝑝𝑒𝑟 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑜𝑟𝑑𝑒𝑟
    Statement Showing Overhead Cost per Unit
    Particulars A B
    Outputs (units) 5,000 60,000
    Volume related activity costs @ Rs. 3.93 Rs. 78,600 Rs. 4,71,600
    per machine hour
    Set up related activity costs @ Rs. Rs. 2,56,250 Rs. 5,63,750
    12,812.50 per set up
    Purchase related activity costs @ Rs. Rs. 1,81, 765 Rs. 4, 36, 236
    1136.03 per purchase order
    Total overhead cost Rs. 5,16,615 Rs. 14,71,586
    Overhead cost per unit = Total overhead Rs. 103.32 Rs. 24.53
    cost / output

    Question no-2-Solution
    Activity Costing Method
    Calculation of Activity Based Overhead Rates
    Activity Cost Cost Cost Drivers No. of Activity based rate
    Pool Cost
    Drivers
    Set up costs Rs. 1,00,000 No. of set-ups 20 100000
    = 𝑅𝑠. 5000 𝑝𝑒𝑟 𝑠𝑒𝑡 𝑢𝑝
    20
    Material Rs. 93,000 No. of 31 93000
    handling costs production = 𝑅𝑠. 3000 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑟𝑢𝑛
    31
    runs
    Production Rs. 77,500 No. of 31 77,500
    Scheduling production = 𝑅𝑠. 2500 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑟𝑢𝑛
    31
    costs runs
    Other variable Rs. 37,500 No. of Labour 5000* 37,500
    costs hours = 𝑅𝑠. 7.50 𝑝𝑒𝑟 𝐿𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟
    5000

    *Total no. of labour hours = Labour hours per unit x no. of units produced
    Product Labour hours per unit No.of units produced Total no.of labour
    hours consumed
    A 1 100 100
    B 2 200 400
    C 1 500 500
    D 2 2000 4000
    Total 5000
    Statement showing Cost per unit
    Particulars A(Rs.) B(Rs.) C(Rs.) D(Rs.)
    Material Cost@ Rs. 100per unit 10,000 60,000 1,00,000 8,00,000
    Labour Cost@ Rs. 25 per unit 2500 10,000 12,500 1,00,000
    Overhead Cost:
    Set up costs @ Rs. 5000 per setup 10,000 20,000 30,000 40,000
    Material handling costs@ Rs. 3000 6,000 9,000 18,000 60,000
    per production run
    Production Scheduling costs@ Rs. 5,000 7500 15,000 50,000
    2500 per production run
    Other variable costs@ Rs. 7.50 per 750 3000 3750 30000
    labour hour
    Total Costs 34250 109,000 179,250 10,80,000
    No.of units 100 200 500 2000
    Cost per unit 342.50 547.50 358.50 540.00

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