Osbourne pratice exam - Activity Based Costing

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jodyewhite
jodyewhite Registered Posts: 35
in Management Accounting: Costing
Hi Anyone
I am struggling to remember how to work out ABC and how they come to the answer. I have enclosed the question.

Many Thanks

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  • mergen
    mergen Registered Posts: 112 New contributor 🐸
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    Lets see if i can answer it. Do you have the answers to check?

    First you need to calculate the OAR, which is 5.5mil/275000= £20

    a) Cost driver per m.r is 3.5million/875=4000
    Cost driver per set-up is 2million/250=8000
    Total material handling cost, Alpha - £700,000.00 and Delta - £2,800,000.00 which adds upto 3.5mil
    Totalprod set-up cost, Alpha - £400,000.00 and £1,600,000.00 which adds upto 2mil

    b) Budgeted labour hours = 275000 (2x87500+1x100000)
    Total Over head Absorbed, Alpha - £3,500,000.00 (20x2x87500) and Delta - £2,000,000.00

    c) ABC, Alpha - £49 & Delta - £69
    Absorption costing, Alpha - £76 & Delta - £45

    Hope thats right.... haha
  • jodyewhite
    jodyewhite Registered Posts: 35
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    Hi Mergen

    Many Thanks that's the right answers.
    b) Alpha has £40 and Delta £20 overheads per unit, how do they come to this.
    c) How do you come to the answer.

    Many Thanks
    JO
  • mergen
    mergen Registered Posts: 112 New contributor 🐸
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    b) Alpha - £40 = 3.5mil/87500. Delta - £20 = 2mil/100000

    c) ABC Alpha 1,100,000.00/87500=13 then plus 6+30 = 49
    Absorption costing Alpha 6+30+40(3.5mil/87500)=76. Absorption includes fixed costs.
  • jodyewhite
    jodyewhite Registered Posts: 35
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    Many Thanks for your help with this subject.
  • mergen
    mergen Registered Posts: 112 New contributor 🐸
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    You are welcome :)
  • jmh
    jmh Registered Posts: 42
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    hello, can you please explain how do you know that Alpha is 3.5mil and Delta is 2,0mil when calculating the overheads per unit? i know this is probably silly question and very obvious but would really appreciate help.

    thank you

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