Total costs =3.49%CDirect materials- 1,311,000 Departmental costs- indirect materials- 9,000-Salaries- 216,000-Lubricants- 54,000 - Communications costs 54,200 -Equipments depreciations 9,000-Other costs 33,000 Total costs for Camberta 1,686,200Number of orders 234,000Material handling rate= 234,000/1686200x100= 3.52%Q2 aThe materials handling rates for Jade ManufacturingFor Ganzt is 3.49%. Allocating this to 120, 000 units 3.49%x 120,000= $ 418,000 ii. For Camberta is 3.52% Allocating this to 234,000 units 3.52%x234, 000=823,680Material handling costsUsing the traditional costing method, Cost per Unit= total costs/ total purchase orders3,441,000/120,000=28.76/unit For ABC the cost/unit= total activity cost/total number of units for activity.
Identifying each particular activity and departments. For the material receiving and handling departments, the activities are the purchase orders. Cost/unit= direct material costs/ purchase ordersFor Gantz=3,009,000/120,000= 25.075C2011 for Gantz current amounts extra costsDirect materials- 3,009,000 1,311,000Departmental costs- indirect materials- 9,000 9,000-Communication costs- 57,0002,80054,200-Salaries- 270,00054,000 216,000-Lubricants- 54,00054,000-Equipments depreciations- 9,000 9,000-Other costs- 33,0001080022,200Total costs for Gantz production. 3,441,000 1,686,200Increase in direct material costs2011 201220133,009,000= 1504505%of 3,009,000=150450 5%of3159450=157,972.5 3,159,450 3317422.5Value of the Gantz material 2011201260%of 3,009,000= 1,805,400 60%of 3,159,450=1,895,670 60% of 3317422.5=1,990,453.5Increase in purchase orders 201120122013120,000 10% of 120,000= 12000 10%132000=13200 132,000=145200Question 3ABC (Activity based costing) is a model of costing, which identifies activities in a firm and assigns the cost of each resource to the products and services depending on the exact consumption by each.
Through this method of costing, the firm is able to estimate the costs of specific products more precisely as compared to other costing methods. The firm is also able to identify and eliminate the products that are not profitable and reduce the prices of the overpriced products. Many firms have adopted this costing model due to its merits.
AdvantagesThis model provides accurate costing for the products and services in an organization. This is because all the products and services are split into specific activities, and each activity allocated costs depending on how much resources it consumes. This results in accuracy in determining costs for each product. It provides a better understanding of the factors that affect the profitability of the firms like distribution channels, region, consumers, and brands. The method then links the profitability of each activity, and how each activity consumes the firms' resources. Through this, firm is able to determine which activity is profitable than others.
It utilizes the unit cost for each product instead of the total cost. This way, the firm is able to how much it costs to produce each product or service. Consequently, the firm is able to know how much resources each product is using, and how much resource to purchase for each product. This reduces wastage of resources. ABC system enables the accounts manager to estimate the cash flows of the business. When the overheads are divided into single activities and costs allocated to each activity, the accounts manager is able to accurately estimate the amount of costs that will be incurred.
ABC system allows for continuous improvement in the manufacturing process. This is because, the planning and control of the manufacturing process is focused on the process level. This ensures quality in the end product of the manufacturing process. It also improves effectiveness and efficiency of budgeting. This is because, this model identifies the performance relationship between different service and process levels, and the allocation of the costs done on the basis of consumption of resources.