COST AND MANAGEMENT ACCOUNTING Activity based costing Question Bank Multiple Choice Questions 1 2 3 4 5 6 7 8 9 10 11 12 13 D D D A A B True B D C False C A QUESTION 2 2 1 Activity Purchasing Processing Shipping Overheads Purchasing Processing Shipping Overheads per unit Components Direct labour 2 2 Questions 10 marks R 192 000 288 000 125 000 605 000 Cost driver Number of purchase orders Machine hours Number of shipments 300 25 000 500 Rate R 640 11 52 250 BLOSSOM 100 x 640 64 000 15 000 x 11 52 172 800 150 x 250 37 500 274 300 5 000 54 86 60 22 136 86 CE CE CE CE BLOOM 200 x 640 128 000 10 000 x 11 52 115 200 350 x 250 87 500 330 700 4 000 P P P 82 68 CE 40 11 133 68 ABC system differ from traditional system by having a greater number of cost centres in the first stage ABC has a greater number and variety of cost drives allocation bases in the second stage Overheads are assigned to each major activity rather than departments ABC systems tend to establish separate cost driver rates for support departments whereas traditional systems merge support and production centre costs QUESTION 3 15 marks Soldering Shipments Quality Machining Machine Purchase orders C 620 000 475 400 28 800 set up 375 000 471 000 430 000 785 000 10 000 38 750 95 040 96 000 15 000 0 60 43 16 5 0 30 25 Classic Modern Activity R R 592 500 0 60 355 500 00 192 500 0 60 115 500 00 CE 8 100 43 00 348 300 00 1 900 43 00 81 700 00 CE Quality control 28 100 16 00 449 600 00 10 650 16 00 170 400 00 CE Purchase orders 40 050 5 00 200 250 00 54 990 5 00 274 950 00 CE Machining 88 000 0 30 26 400 00 8 000 0 30 2 400 00 CE Machine setup 8 000 25 00 200 000 00 7 000 25 00 175 000 00 CE 1 580 050 00 819 950 00 3 1 Overhead cost Cost driver Activity rate Soldering Shipments Classic Modern Manuf O H p u 12 500 126 40 CE 3 250 252 29 CE Direct Materials Direct Labour 105 00 1 5 12 18 00 3 5 12 Machine Usage 6 16 96 00 3 16 290 00 42 00 48 00 345 40 P 632 29 P Total Manufacturing Cost p u Max 11 5 2 Advantages of budgeting Define goals and objectives Communicating plans Coordinate activities Uncover potential bottlenecks Means of allocating resources Think about and plan for the future Max 11 QUESTION 4 marks 4 1 4 2 Direct material Direct labour Man overheads Moulding Painting Cost driver rates R 25 Job POTS 470 332 290 680 R602 000 70 000 8 6 x 110 R735 000 R420 000 1 75 x 680 802 970 946 1 190 3 908 1 1 1 P 1 P Activity Mixing and shaping Finishing Set ups Materials handling Rate 532 000 78 000 R6 82 per machine hour 431 000 72 000 R5 99 per direct labour hour 256 000 200 R1 280 per set up 118 000 400 R295 per material movement 1 1 1 1 Direct material Direct labour Man overheads Mixing and shaping Finishing Set ups Materials handling Job POTS 470 332 290 680 130 x 6 82 115 x 5 99 2 x 1 280 4 x 295 802 970 886 60 688 85 2 560 1 180 7 087 45 1 P 1 P 1 P 1 P 1 P 1 P Question 5 SOLUTION Activity Based Costing ABC is a system of full costing which recognises that the more traditional method of absorption costing using cost centre absorption rates may not provide accurate product costs ABC identifies the activities of a production process and the extent to which individual products make use of those activities Costs are then estimated for each of these activities which are referred to as cost pools The number of times which the activity is expected to be carried out is also estimated and a cost driver rate calculated Estimated cost of pool Estimated number of times activity is to be performed An individual product will probably make use of a number of different activities and a proportion of the cost of each activity will be attributed to the product using these predetermined cost driver rates The actual costs of each cost pool together with the number of times the activity is performed will be collected and a comparison made with the corresponding estimated values This is similar to the comparison of actual and budgeted costs and volumes using the traditional absorption costing approach except that there are likely to be a greater number of cost driver rates using ABC than the one per cost centre absorption rate found in traditional absorption costing