Exercise 01

Next Tech is a manufacturer of customized special circuit boards for different

electrical equipments. The boards are produced in batches in a single manufacturing
facility. Each board requires an engineer to prepare the specifications and schematic
drawings. Once this design is complete, the equipment is set up for the batch
production. As each batch is completed, a sample of the units is inspected for quality
and tolerances. Costs have been assigned as follows:

Engineering ................................Rs; 150,000

Setups ......................................... 120,000
Labor .......................................... 100,000
Inspection ................................... 150,000
Factory lease .............................. 60,000
Factory utilities .......................... 24,000

The following activity drivers have been identified and their capacities determined:

Activity Driver Practical Capacity

Labor hours ................................ 10,000
Setup hours................................. 4,000
Engineering hours ...................... 5,000
Inspection hours ......................... 12,000
Machine hours............................ 20,000

Identify the appropriate cost pools and activities that belong to each pool and
the activity driver that will be used for computing pool rates. (Use machine
hours as the activity driver for the factory lease and factory utilities cost pools).

Calculate the overhead cost allocation rate as per the traditional based costing
method and as per the ABC method (Use machine hours to allocate costs under
the traditional costing method).
 Exercise 02

An electronic product manufacturer produces 3 types of electronic products: X, Y, and Z. The

costing information
of the company is as follows:
X Y Z
Quantity Produced 20,000 40,000 60,000
Direct material per unit Rs. 100 80 60
Direct labor per unit Rs. 60 80 100
Labor hours per unit - Department 1 6 8 10
Machine hours per unit - Department 2 6 8 14
Production overheads analyzed by the
department, Department 1 .
Rs. 2,200,000
Department 2 ..Rs. 3,000,000
Rs. 5,200,000

Department 1 is labor incentive and Department 2 is machine incentive.

Total labor hours in Department 1 400,000

Total machine hours in Department 2 800,000

Furthermore, following information relating to activity drivers and their capacities:

Activity drivers X Y Z
No.of Purchase requisitions 2,400 3,600 4,00
No.of setups 480 520 600

Production overhead analyzed by activity

Receiving / inspecting 2,800,000
production scheduling/ machine setup 2,400,000
5,200,000

Number of batches received/ inspected 10,000

Number of batches for scheduling and set-up 1,600

The market prices of the three products are as follows;

A B C
Price
235 255 275

The company is bound to adapt to the market prices as its selling prices due to the heavy market
competition. Calculate the cost per unit of each product as per the traditional costing method and
ABC method and calculate profit per unit under the two separate costing methods.