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I Am an Undergraduate of University of Colombo

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Submitted By dhanusha
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Learning Outcome 2 (a.) Full production cost under Traditional absorption costing method.

| Product X | Product Y | Direct material cost/unit | $20 | $10 | Direct labor cost/unit | $0.20 | $0.80 | Total direct cost | $20.20 | $10.80 | Overhead cost/unit (Working 1) | $25 | $50 | Full Production Cost / Unit | $45.20 | $60.80 |

Working 1
Total overhead cost $500,000. Product X Product Y
No of labor hour use 4,000X0.10 8000X0.20 400 1,600
Overhead cost allocation $500,000/2,000 X 400 $500,000/2,000 X 1,600 $ 100,000 $ 400,000
Overhead cost/ unit 100,000/4,000 400,000/8,000 $25 $50

(b.) Full production cost under Activity Based Costing method.

| Product X | Product Y | Direct material cost/unit | $20 | $10 | Direct labor cost/unit | $0.20 | $0.80 | Total direct cost | $20.20 | $10.80 | Overhead cost/unit (Working 2) | $65.75 | $29.625 | Full Production Cost / Unit | $85.95 | $40.425 |

Working 2 Activity | Total cost ($) | Cost driver | Total number | Product X($) | Product Y($) | Batch setup | 100,000 | No of setups | 20 | 100,000/20x10=50,000 | 100,000/20 x 10=50,000 | Order handling | 200,000 | No of orders | 40 | 200,000/40x24= 120,000 | 200,000/40 x 16=80,000 | Machining | 120,000 | Machine hours | 15,000 | 120,000/15,000x6,000=48,000 | 120,000/15,000x9,000=72,000 | Quality control | 80,000 | No of checks | 32 | 80,000/32x 18=45,000 | 80,000/32x14=35,000 | Total cost | 500,000 | | | 263,000 | 237,000 | Cost per unit | | | | 263,000/4000=65.75 | 237,000/8000=29.625 |

(c.) Importance of ABC costing over the traditional costing in work place.
Still many manufacturing and service organizations use traditional cost absorption method to assign manufacturing overhead to units produced. However, traditional costing is an old-fashioned costing system

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