Page 3 - CIMA OCS Workbook May 2019 - Day 1 Tasks
P. 3
SUGGESTED SOLUTIONS
CHAPTER FOUR – P1
1 COSTING
EXERCISE 1 (A) - COSTING METHODS
Question Response
What kind of costing system does • Standard absorption costing (p11)
VitaMine operate?
How are overheads absorbed? • Factory-wide rate based on direct labour hours (p11)
How useful do you think ABC would Arguments for
be to VitaMine? • VitaMine is a manufacturer with automation.
• We are not told how many different products are
made but VitaMine only has three product types.
These are not very similar, so could argue that ABC
would help apportion costs better.
• Planning to extend the product range – ABC would
help give more useful costs for pricing.
Arguments against
• Looking at the standard cost cards, fixed OH
comprise only 9-13% of total production costs
• Little evidence that cost control is an issue
• Labour costs are a significant cost so if labour hours
are used, then the results of a traditional approach
will be meaningful.
Summary – debatable the extent to which ABC would
add much to VitaMine?
Suggest some cost drivers that • Quality costs – number of inspections
could be used by VitaMine for ABC. • Weighing and mixing – number of batches / mixes
• Encapsulating – encapsulating machine time
• Tableting – tableting machine time
• Coating – coating machine time
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