SILMULTANEOUS EQUATIONS Let X = maintainance cost after reapportionment of canteen. Let Y = canteen costs after reapportionment of maintainance 1.

X = 25050 + 8/100y 2. Y = 24375 + 3/100x Substituting equation 2 into equation 1.

X = 25050 + 8/100 (24375+ 3/100x) X = 25050 + 1950 + 3/1250x X = 27000 + 3/1250x 1247/1250 x = 27000 X =27000/1247/1250 X = $27064.96 Substituting X into equation 2 Y = 24375 + 3/100(27064.96) = $25186.95

Filling $ 74,260 1st App. Main. 2nd App. Canteen 18,945.47 15,112.17 108,317.64

Sealing $ 38,115 7,307.54 8,059.82 53,482.36

Maintenance $ 25,050 (27064.96) 2,014.96 -

Canteen $ 24,375 811.95 (25,186.95) -

REPEATED DISTRIBUTION METHOD Filling $ 74260 1st App. Main 2nd App Can. 3rd App Main 4th App.Can. 5th App Main 17535 15076 1407 36 4 108318 Sealing $ 38115 6764 8040 543 19 1 53482 Maintenance $ 25050 (25050) 2010 (2010) 5 (5) Canteen $ 24375 751 (25126) 60 (60) -

b) Calculation of Predetermined Overhead Absorption rate: Filling : $110,000/13100 = $8.40 per direct labour hour. Sealing: $53,300/10250 = $5.20 per direct labour hour

Filling O/H Absorbed ( $8.40 X 12820) Actual o/h Under absorbed O/H 107688 108318 630 Sealing O/H Absorbed ($5.20 X 10075) Actual O/H Underabsorbed o/h 52390 53482 1092

c) Raw materials Direct labour cost Prime cost O/h Filling (3 x 8.40) 25.20 Sealing (2 x 5.20) 10.4 Total cost Profit (2/3 x 93) Selling price

Product 25.40 32.00 57.40

35.6 93 62 155

QUESTION 4 a) Fundamental differences between a traditional and an ABC system:  Traditional cost accounting it is assumed that cost objects consume resources whereas in ABC it is assumed that cost objects consume activities.  Traditional cost accounting mostly utilizes volume related allocation bases while ABC uses drivers at various levels.  Traditional cost accounting is structure-oriented whereas ABC is processoriented. b) ABC System being preferred than Traditional Costing System  Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities. Cost are traced to individual activities and then allocated to cost objects. It is especially effective when the same

department or departments produce many different types of products. For instance, more complex products often require more help from service departments such as engineering, maintenance and materials handling. ABC encourages managers to focus on activities as well as the use of those activities. ABC requires managers to look at each cost to increase the benefit from each dollar spent. It also encourages managers to cooperate because it shows how their efforts are interrelated. This results in activity- based management.

(i) A Direct material Direct labour Prime cost Overhead Total cost Profit per unit Selling price 4 4 8 15 23 7 30 B 3 6.67 9.67 25 34.67 15.33 50 C 6 10 16 37.5 53.5 16.5 70

Workings: Calculation of overhead absorption rate : 97500/2600 = $37.50 per direct labour hour Where total labour hours = (A = 24/60 X2000) + (B = 40/60 X 1500) + (C = 60/60 X 800) = 2600.

To get labour hours spent on each unit divide minutes per unit by 60. Therefore overhead per unit: Overheads A = 24/60 X37.5 B = 40/60 X 37.5 C = 60/60 X 37.5 = 15 = 25 = 37.5

(ii)

Based on activity based costing

A Direct material Direct labour Prime cost Overheads: Material receipts and inspections Power Material handling Total cost Profit per unit Selling price 5.2 12 6.5 31.7 (1.7) 30 4 4 8

B 3 6.67 9.67

C 6 10 16

3.47 6 7.8 26.94 23.06 50

19.5 7.5 3.25 46.25 23.75 70

Workings: Overheads Calculation of cost driver rates: Material receipts and inspection: 31200/30 = $1040 per batch of material Power: 39000/26000 = $1.50 per drill operation Material handling 27,300/21000 = $1.30 per metre of material handled

Material receipts and inspections: A: 1040 X 10/2000 = $5.2 B: 1040 X5/1500 = $3.47 C: 1040 X 15/800 = $19.5 Power A: 1.50 X 8 = 12 B: 1.50 X 4 = 6 C: 1.50 X 5 = 7.5 Material handling A: 1.30 X 5 = 6.5 B: 1.30 X 6 = 7.8 C: 1.30 X 2.5 = 3.25