Full costing and activity based costing
York Ltd makes three products, the Ouse, Lendal and Clifton. They wish to know how much each product costs and are aware there are different costing techniques. They are considering marginal costing, absorption (full) costing or activity based costing.
For full costing they could absorb overheads on the basis of either direct labour hours or machine hours.
The management accountant has prepared the following information:
Ouse Lendal Clifton
Production volume (units) 9,000 3,000 1,500
Direct materials costs per unit (£) 30 40 15
Direct Labour hours per unit (hrs) 2 2 4
Direct labour cost per hour (£) 20 30 10
Machine hours per unit 4 3 10
Number of production runs 30 20 50
Number of deliveries 18 7 25
Number of receipts 50 70 580
Selling price per unit (£) 300 400 500
Type of overhead Cost driver £’000
Set up costs Number of production runs 350
Machine related costs Number of machine hours 900
Receiving costs Number of receipts 350
Packing Number of deliveries 650
Engineering Number of production runs 750
Total 3,000
Task 1: Calculate a range of costs
Calculatethe following for each product:
• Marginal cost (Cost per unit and Contribution per unit)
• Traditional full cost(Cost per unit and profit per unit)
• Activity based cost (Cost per unit and profit per unit)
(20 marks)
Task 2: Criticallyanalyse the usefulness of the figures you have calculated for:
o identifying product costs and product profitability
o decision making.
Illustrate your answer with calculations from task 1
(70 marks)
Range and appropriateness of literature and correct citation and referencing
(10 marks)