Activity Based Costing

Bind Co. uses the activity-based costing approach for cost allocation and product costing purposes. Printing, cutting binding functions make up the manufacturing process. 

Machinery and equipment are arranged in operating cells that produce a complete product starting with raw materials. 

Which of the following are charasteristics of Bind's activity-based-costing approach?

XY manufactures and sells three products: D, E and F. Budgeted costs for production set-ups for the next year are £680,000.

The following information is given on budgeted plans for each product.

                                      Product D            Product E              Product F
Production units             12,000                   15000                       4000
Batch size                                 20                          30                             10
Number of set-ups
per batch                                     1                            4                               2

To the nearest £, what will be the set-up cost for Product E using activity based costing?

1) Identify the cost drivers to the following cost categories:
Categories:
1. Marketing
2. Client Meetings
3. Data Input
4. Analysis & Research
5. Training & Development
Cost Driver:
A. No. of Clients
B. Research Hours
C. No. of Staff
D. Computer hours
E. No. of client lunches

2) Using the following information, what is the cost per driver of Inspections?
Total Overheads – £250,000
Inspection costs – 25%
Client Meeting costs – 75%
No. of Inspections – 40
No. of Clients – 70

3) To produce Product X, it takes 15 inspections.
Using the information provided in Question 2, what are the total overheads applicable to product X?

4) Which of the following is an advantage of ABC?

1. Better cost control
2. Fairer allocation of costs
3. Can be used in complex situations
4. More accuracy

5) Which of the following is a disadvantage of ABC?

1. Not always relevant
2. Need to choose appropriate drivers and activities
3. Complex
4. Inexpensive

5) Which of the following is a disadvantage of ABC?

1. Not always relevant
2. Need to choose appropriate drivers and activities
3. Complex
4. Inexpensive

2) Using the following information, what is the cost per driver of Inspections?
Total Overheads – £250,000
Inspection costs – 25%
Client Meeting costs – 75%
No. of Inspections – 40
No. of Clients – 70

Choose the correct words from those highlighted.
Traditional costing systems tend to allocate too great/too small a proportion of overheads to high volume products and too great/too small a proportion of overheads to low volume products.

ABC recognises the complexity of modern manufacturing by the use of multiple cost pools.

ABC is not a system that is suitable for use by service organisations.

Activity based management is a system of management that uses activity based cost information to achieve which of the following?