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ABP makes two products, X and Y, with the following cost patterns. Product X Product Y Direct materials Direct labour at $5 per hour Variable production overheads at $6 per hour 27 20 24 25 6 55 3 50 Production fixed overheads total $300,000 per month and these are absorbed on the basis of direct labour hours. Budgeted direct labour hours are 25,000 per month. However, the company has carried out an analysis of its production support activities and found that its fixed costs' actually vary in accordance with non-volume-related factors. Activity Cost driver Product X Product Y Total cost Set-ups Materials handling Inspection 30 20 40,000 150,000 110,000 300,000 Production runs Production runs Inspections 30 880 20 3,520 Budgeted production is 1,250 units of product X and 4,000 units of product Y. Required Given that the company wishes to make a profit of 20% on full production costs, calculate the prices that should be charged for products X and Y using the following. (a) Full cost pricing (b) Activity based cost pricing

ABP makes two products, X and Y, with the following cost patterns. Product X Product Y Direct materials Direct labour at $5 per hour Variable production overheads at $6 per hour 27 20 24 25 6 55 3 50 Production fixed overheads total $300,000 per month and these are absorbed on the basis of direct labour hours. Budgeted direct labour hours are 25,000 per month. However, the company has carried out an analysis of its production support activities and found that its fixed costs' actually vary in accordance with non-volume-related factors. Activity Cost driver Product X Product Y Total cost Set-ups Materials handling Inspection 30 20 40,000 150,000 110,000 300,000 Production runs Production runs Inspections 30 880 20 3,520 Budgeted production is 1,250 units of product X and 4,000 units of product Y. Required Given that the company wishes to make a profit of 20% on full production costs, calculate the prices that should be charged for products X and Y using the following. (a) Full cost pricing (b) Activity based cost pricing

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter5: Process Costing
Section: Chapter Questions
Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...
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Example: activity based costing and pricing ABP makes two products, X and Y, with the following cost patterns. Product X Product Y $ $ Direct materials Direct labour at $5 per hour Variable production overheads at $6 per hour 27 24 25 20 3 6. 50 55 Production fixed overheads total $300,000 per month and these are absorbed on the basis of direct labour hours. Budgeted direct labour hours are 25,000 per month. However, the company has carried out an analysis of its production support activities and found that its fixed costs' actually vary in accordance with non-volume-related factors. Activity Cost driver Product X Product Y Total cost $ Set-ups Materials handling Inspection 40,000 150,000 110,000 300,000 Production runs 30 20 Production runs 30 880 20 Inspections 3,520 Budgeted production is 1,250 units of product X and 4,000 units of product Y. Required Given that the company wishes to make a profit of 20% on full production costs, calculate the prices that should be charged for products X and Y using the following. (a) Full cost pricing Activity based cost pricing (b)
Transcribed Image Text:Example: activity based costing and pricing ABP makes two products, X and Y, with the following cost patterns. Product X Product Y $ $ Direct materials Direct labour at $5 per hour Variable production overheads at $6 per hour 27 24 25 20 3 6. 50 55 Production fixed overheads total $300,000 per month and these are absorbed on the basis of direct labour hours. Budgeted direct labour hours are 25,000 per month. However, the company has carried out an analysis of its production support activities and found that its fixed costs' actually vary in accordance with non-volume-related factors. Activity Cost driver Product X Product Y Total cost $ Set-ups Materials handling Inspection 40,000 150,000 110,000 300,000 Production runs 30 20 Production runs 30 880 20 Inspections 3,520 Budgeted production is 1,250 units of product X and 4,000 units of product Y. Required Given that the company wishes to make a profit of 20% on full production costs, calculate the prices that should be charged for products X and Y using the following. (a) Full cost pricing Activity based cost pricing (b)
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