Peter Ltd produces two products, Small and Large. The company currently absorbs overheads on the basis of units produced, but they have read about a method based on activities undertaken and have asked you to help them investigate the method. The output is Small 15,000 and Large 12,000. The company has provided the following information Overhead activity Annual costs Cost driver Amount of activity Small Large Production £129,800 Machine hours 1260 1100 Quality inspection £58,080 No. of production runs 80 30 Material purchased £71,820 Purchase orders 30 12 Deliveries to retailers £18,080 Shipments 20 12 a) Produce a statement showing the overhead split using Activity Based Costing. Show the amount per unit produced.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Peter Ltd produces two products, Small and Large. The company currently absorbs
The output is Small 15,000 and Large 12,000.
The company has provided the following information
Overhead activity Annual costs Cost driver Amount of activity
Small Large
Production £129,800 Machine hours 1260 1100
Quality inspection £58,080 No. of production runs 80 30
Material purchased £71,820 Purchase orders 30 12
Deliveries to retailers £18,080 Shipments 20 12
a) Produce a statement showing the overhead split using Activity Based Costing. Show the amount per unit produced.
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