Page 34 - P1 Integrated Workbook STUDENT 2018
P. 34
Chapter 2
These then get charged to each product based on the activity for each
product:
Model M1
$
Direct materials 11.00
Direct labour (2 hours @ $8) 16.00
Setup costs ($400 per setup × 1/2,000 units) 0.20
Material handling costs ($500 per batch × 1/2,000 units) 0.25
Special part handling costs ($0.625 × 2 parts) 1.25
Invoicing ($100 per order × 60/8,000) 0.75
Other overheads ($3 × 2 direct labour hours) 6.00
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Total production cost using
ABC $35.45
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Absorption costing
Total number of labour hours
M1: 8,000 units @ 2 hours = 16,000 hours
M2: 8,000 units @ 2.5 hours = 20,000 hours
= 36,000 hours
OAR = $328,600/36,000
= $9.13 per labour hour
Absorption cost card:
Model M1
$
Direct materials 11.00
Direct labour (2 hours @ $8) 16.00
Indirect overheads ($9.13 × 2 direct labour hours) 18.26
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Total production cost using absorption costing $45.26
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