Page 251 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes Solution:
Firstly, we will calculate the Product Cost based on Direct Labour Hour Rate. The calculations
are shown below.

Direct Labour Hour Rate = Total manufacturing overheads/Total direct labour hours ` 17,50,000/
1,00,000 = ` 17.50
Absorption of manufacturing overheads:

Particulars Product X Product Y
Manufacturing Overheads ` 17.50 × 6 Direct Labour Hours = ` 17.50 × 8 Direct Labour Hours =
` 105 ` 140

Overheads based on Activity-based Costing:
Identification of Activities and Rate for each Activity:
Particulars Total Overheads Details of Activity Rate per Activity [`]
Machine Set up 4,50,000 10,000 45 per set up
Quality inspection 3,00,000 15,000 20 per inspection
Production order 1,80,000 600 300 per order
Machine hours worked 6,25,000 50,000 12.5 per hour
Material receipts 1,95,000 1,500 130 per receipt
Total overheads 17,50,000

Allocation of overheads to Products on the basis of Activity Rates:

Particulars Frequency of Rate per Product X ` Product Y `
Activity Activity
Machine Set up 10,000 45 6,000 X ` 45 = 4,000 X ` 45 =
` 2,70,000 ` 1,80,000
Quality inspection 15,000 20 10,000 X ` 20 = 5,000 X ` 20 =
` 2,00,000 ` 1,00,000
Production order 600 300 200 X ` 300 = 400 X ` 300 =
` 60,000 ` 1,20,000
Machine hours worked 50,000 12.5 12,000 X ` 12.5 = 38,000 X ` 12.5 =
` 1,50,000 ` 4,75,000
Material receipts 1,500 130 300 X ` 130 = 12,000 X ` 130 =
` 39,000 ` 1,56,000
Total overhead costs 7,19,000 10,31,000
Units produced 5,000 25,000
Overhead cost per unit 143.80 41.24

Computation of Total Cost under Traditional Cost Accounting and Activity-based Costing:
Particulars Product Product Product Product
X – Activity Based Y – Activity Based X – Traditional Y – Traditional
Costing Costing Costing Costing
Direct Material 200 100 200 100
Direct Labour 60 80 60 80
Manufacturing 143.80 41.24 105 140
overheads
Total cost of 403.80 221.24 365 320
Manufacture

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