Page 33 - P1 Integrated Workbook STUDENT 2018
P. 33
Activity based costing
Solution
Total number of setups:
M1: 8,000 units
2,000 units in a batch
8,000/2,000 = 4 batches
1 setup per batch
= 4 setups
M2: 8,000 units
100 units in a batch
8,000/100 = 80 batches
3 setups per batch
= 80 × 3 = 240 setups
Setup costs = $ 97,600 Cost driver = no. of setups
Cost driver rate = $97,600/no. of setups
= $97,600/(4 + 240)
= $400 per setup
The same technique applies for the other overheads:
$ Cost driver Total Charge out
drivers rate
Setup costs 97,600 Setups 244 $400 per
setup
Material handling 42,000 Batches 84 $500 per
costs batch
Special part handling 50,000 Special parts 80,000 $0.625 per
costs special part
Invoicing 31,000 Sales orders 310 $100 per
sales order
Other overheads 108,000 Direct labour hours 36,000 $3 per
labour hour
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