# Essays on Strategic Accounting Individual Assignment 2006-07 Assignment

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PART A: Bingley Products a). Solution: Comparing Volume based costing with ABC. (i)Departmental Apportionment of Overhead CostsProductMachining Dept(£)Assembly Dept (£)Widgets 120,000 288,750Gadgets 240,000 99,000 Helios144,000 49,500 Total504,000 437,250 The above calculations were arrived at by multiplying the number of machine hours per unit for each product by the number of units produced and then multiply by the cost per unit. For example the £120,000 for Machine department costs applied to widgets is calculated by taking 2machine hours per unit time 50,000 x 1.2. Mathematically we can write thus: Overhead cost for widgets allocated to machining department= Number of units produced x number of machine hours per unit x machining department machine hour rate= 50000 x 2 x £1.2 per machine hour = £120,000.Overhead cost for widgets allocated to assembly department = Number of units produced x number of labour hours per unit x assembly department’s labour hour rate = 50000 x 7 x £0.825 = £288,750.Widgets (£)Gadgets (£)Helios (£)Sales 2,250,000 3,800,000 2.190.000Cost of Sales: Direct costs: Direct labour and Materials 1,600,000 3,360,000 1,950,000 Factory Overhead Costs: Machining Department 120,000 240,000 144,000 Assembly Department288,750 99,000 49,500 Total costs2,008,750 3,699,000 2,143,500 Gross Margin241,250 101,000 46,500 Product Profitability Analysis Statement UnderTraditional Absorption CostingThe figure for sales is calculated by multiplying the number of units by the cost per unit.

For example sales for Widgets is calculated as follows: Number of Units produced and sold = 50000 unitsSales price per unit = £45Sales figure 50000 X £45 = £2,250,000Similar calculations have been done for Gadgets and Helios to arrive at the figures of £3,800,000 and £2,190,000 respectively. The direct labour and materials cost is calculated by multiplying the units produced by the direct labour and material cost per unit.

For example the amount for Widgets is calculated thus: Number of units produced= 50000 unitsDirect labour and material cost per unit = £ 32Total direct labour and material cost = 50000 x £ 32 = £1,600,000.Similar calculations have been done for Gadgets and Helios. Overhead Absorption based on Activity cost driversApportionment of overheads to cost pools Activity Consumption cost driver (1)Cost (2) £Activity Consumption (3)Activity rate(2)/(3) £Machine Hours357.0004200000.85Direct Labour Hours318.0005300000.6Set-ups26.00052050Customer Orders156.000320004.875Supplier Orders84.000112007.5 Here the activity rate for each cost driver is calculated by dividing the activity cost by the amount of consumption of the activity.

These rates are later used to calculate the costs to be allocated for each product as shown below. Apportionment of Overheads to ProductsWidgets (50000 Units)Activity Consumption cost driver (1)Activity rate (2) £Activities (3)Total Overhead (4)=(2)x(3) £Overhead per unit (5) £Set-ups501206,0000.12Customer Orders4.875800039,0000.78Supplier Orders7,5300022,5000.45Machining Department0.8510000085,0001.7Assembly Department0.6350000210,0004.2Overhead Cost per unit362,5007.25As can be seen above, the total overhead arising from each cost driver is calculated by multiplying the activity rate for that cost driver to the amount of activities demanded by the product.