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

 Products Labor hour per unit Machine hours per unit Material cost per unitSR Volume of productions (Units) Product A 1.5 0.5 20 1,000 Product B 1 1.5 25 5,000 Product C 0.5 1.0 30 1,500

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

 Activities Activity’s Overheads cost pool Set- ups 150,000 Machinery 200,000 Material handling 125,000 Inspection 275,000 Total 750,000

The actual quantity used of activities by products as follows:
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 Products Set- ups Machinery (hours) Material handling Inspection Product A 100 500 15 20 Product B 120 7,500 30 150 Product C 300 1,500 90 700 Total 520 9,500 135 870

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 UNIT 8 Direct labor per unit 10 Manufacturing over head 5 Variable selling expense per units sold 2
 Additional information: SR Fixedmanufacturing costs per year 150,000 Fixedselling and administrating expenses per year 150,000 Number of units produced 20,000 Selling price per unit 50

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.
Accounting Question
Total:
\$8.99