Activity Based Costing Exercise

Blades Inc

Blades Inc. makes three main products, using broadly the same production methods and equipment.

A conventional product costing system is used at present, although an activity-based costing system is being considered. Overheads are currently applied (absorbed) on a machine hour basis.

Details of the three products for a typical period are shown on the data sheet below.

a) Calculate the cost per unit for each product using conventional methods.

Further analysis shows that production overheads can be divided into costs relating to:

  • Set-ups
  • Machinery
  • Materials handling
  • Inspection

Details of the percentage of costs relating to each of these areas, the activity volumes are shown on the data sheet.

b) Calculate the cost per unit for each product using ABC principles.

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