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Question 3 (12 marks) Grass & Go Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated based on direct labour hours. The following information was collected at the end of 2022. Annual sales. Selling price Direct material cost per unit Direct labour cost per unit Overhead cost per unit Standard 36,250 units $650 $90 $200 $90 Following an examination of the data above the marketing manager recommended that more emphasis should be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing manager and suggested that an activity-based costing system should be installed. Overhead activity Setups Machining Engineering Packing The general manager asked the management accountant to recalculate the product costs using ABC techniques. The management accountant subsequently collected the following information. Overhead cost $112,500 $2,500,000 $960,000 $540,000 Cost driver Deluxe 8,500 units $850 $200 $250 $100 Number of setups Machine hours Engineering hours Packing orders Standard 25 setups 65,000 hours 36,000 hours 29,000 orders Deluxe 20 setups 35,000 hours 24,000 hours 7,000 orders Required: (a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines.

Question 3 (12 marks) Grass & Go Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated based on direct labour hours. The following information was collected at the end of 2022. Annual sales. Selling price Direct material cost per unit Direct labour cost per unit Overhead cost per unit Standard 36,250 units $650 $90 $200 $90 Following an examination of the data above the marketing manager recommended that more emphasis should be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing manager and suggested that an activity-based costing system should be installed. Overhead activity Setups Machining Engineering Packing The general manager asked the management accountant to recalculate the product costs using ABC techniques. The management accountant subsequently collected the following information. Overhead cost $112,500 $2,500,000 $960,000 $540,000 Cost driver Deluxe 8,500 units $850 $200 $250 $100 Number of setups Machine hours Engineering hours Packing orders Standard 25 setups 65,000 hours 36,000 hours 29,000 orders Deluxe 20 setups 35,000 hours 24,000 hours 7,000 orders Required: (a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines.

Principles of Cost Accounting
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter10: Cost Analysis For Management Decision Making
Section: Chapter Questions
Problem 8P: The production of a new product required Zion Manufacturing Co. to lease additional plant...
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Question 3 (12 marks) Grass & Go Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated based on direct labour hours. The following information was collected at the end of 2022. Annual sales Selling price Direct material cost per unit Direct labour cost per unit Overhead cost per unit Following an examination of the data above the marketing manager recommended that more emphasis should be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing manager and suggested that an activity-based costing system should be installed. Overhead activity Setups Standard 36,250 units $650 $90 $200 $90 The general manager asked the management accountant to recalculate the product costs using ABC techniques. The management accountant subsequently collected the following information. Cost driver Number of setups Machine hours Machining Engineering Packing Overhead cost $112,500 $2,500,000 $960,000 $540,000 Deluxe 8,500 units $850 $200 $250 $100 Engineering hours Packing orders Standard 25 setups 65,000 hours 36,000 hours 29,000 orders Deluxe 20 setups 35,000 hours 24,000 hours 7,000 orders Required: (a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines.
Transcribed Image Text:Question 3 (12 marks) Grass & Go Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated based on direct labour hours. The following information was collected at the end of 2022. Annual sales Selling price Direct material cost per unit Direct labour cost per unit Overhead cost per unit Following an examination of the data above the marketing manager recommended that more emphasis should be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing manager and suggested that an activity-based costing system should be installed. Overhead activity Setups Standard 36,250 units $650 $90 $200 $90 The general manager asked the management accountant to recalculate the product costs using ABC techniques. The management accountant subsequently collected the following information. Cost driver Number of setups Machine hours Machining Engineering Packing Overhead cost $112,500 $2,500,000 $960,000 $540,000 Deluxe 8,500 units $850 $200 $250 $100 Engineering hours Packing orders Standard 25 setups 65,000 hours 36,000 hours 29,000 orders Deluxe 20 setups 35,000 hours 24,000 hours 7,000 orders Required: (a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines.
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