I’m studying for my Accounting class and need an explanation.

Q1. ABC Corporation makes three types of products and currently uses traditional product costing system.The management is considering using activity based costing. Below is the details on the tree products

ProductsLabor hour per unitMachine hours per unitMaterial cost per unitSRVolume of productions(Units)
Product A1.50.5201,000
Product B11.5255,000
Product C0.51.0301,500

Total manufacturing overhead are SR 750,000. In- depth analysis for overheads has been done to apply activity based costing as follows:

ActivitiesActivity’s Overheads cost pool
Set- ups150,000
Machinery200,000
Material handling125,000
Inspection275,000
Total750,000

The actual quantity used of activities by products as follows:undefined

ProductsSet- upsMachinery (hours)Material handlingInspection
Product A1005001520
Product B1207,50030150
Product C3001,50090700
Total5209,500135870

Direct labor rate is SR 5 per hour and overhead allocated to products under traditional costing system using machine hour as allocation base.

Required:

  • Calculate cost per unit per each product under traditional costing system.
  • Calculate cost per unit per each product under activity based costing.
  • Comment on results.

Q2. In 2020, ABC Company produces a single product with the following information:

Variable cost per unit:SR
Direct martial PER UNIT8
Direct labor per unit10
Manufacturing over head5
Variable selling expense per units sold2
Additional information:SR
Fixedmanufacturing costs per year150,000
Fixedselling and administrating expenses per year150,000
Number of units produced20,000
Selling price per unit50

Required:

  • Prepare income statement using absorption costing and variable costing assuming all 20,000 units sold.
  • Prepare income statement using absorption costing and variable costing assuming all 15,000 units sold and 5,000 units unsold.
  • Comment on results explaining which costing method produces more profit in case of inventory.

ATTACHMENTSacct_322_assignment_2__student_copy.docx

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