MAC2601
ASSIGNMENT 2
SOLUTIONS
PREPARED BY: MTHOMBENI
0767297208
,QUESTION 1
INDEPENDENT PART A
(a) Calculate the manufacturing overheads per unit for both Rocky and BMY bikes
using activity-based costing.
Rocky BMY
Machine costs 1 049 220 1 573 830
2 623 050X150/375 2 623 050X225/375
Assembling costs 425 675,68 1 824 324,32
2 250 000X7/37 2 250 000X30/37
Quality inspections 1 053 000 4 212 000
5 265 000X15/75 5 265 000X60/75
Stores receiving costs 922 500 1 687 500
2 610 000X369/1044 2 610 000X675/1044
Stores issued costs 1 222 248,44 1 842 774,56
3 065 023X650/1630 3 065 023X980/1630
Total 4 672 644,11 11 140 428,89
Overhead cost per unit
Rocky (4 672 644,11/826) 5 656,95
BMY (11 140 428,89/2040) 5 460,99
1
, (b) Explain a difference between the traditional costing and activity-based costing
methods.
∙ Non-manufacturing (ie customer support costs), as well as manufacturing costs, may be
assigned to products for decision-making purposes (not for GAAP inventory valuation).
∙ A number of overhead activity cost pools are used, each of which is allocated to products
and other cost objects using ABC’s own unique measure of activity or driver.
∙ The allocation bases differ from those used in the traditional costing method.
∙ The activity rates may be based on the level of activity at normal capacity rather than on
the budgeted level of activity.
2
ASSIGNMENT 2
SOLUTIONS
PREPARED BY: MTHOMBENI
0767297208
,QUESTION 1
INDEPENDENT PART A
(a) Calculate the manufacturing overheads per unit for both Rocky and BMY bikes
using activity-based costing.
Rocky BMY
Machine costs 1 049 220 1 573 830
2 623 050X150/375 2 623 050X225/375
Assembling costs 425 675,68 1 824 324,32
2 250 000X7/37 2 250 000X30/37
Quality inspections 1 053 000 4 212 000
5 265 000X15/75 5 265 000X60/75
Stores receiving costs 922 500 1 687 500
2 610 000X369/1044 2 610 000X675/1044
Stores issued costs 1 222 248,44 1 842 774,56
3 065 023X650/1630 3 065 023X980/1630
Total 4 672 644,11 11 140 428,89
Overhead cost per unit
Rocky (4 672 644,11/826) 5 656,95
BMY (11 140 428,89/2040) 5 460,99
1
, (b) Explain a difference between the traditional costing and activity-based costing
methods.
∙ Non-manufacturing (ie customer support costs), as well as manufacturing costs, may be
assigned to products for decision-making purposes (not for GAAP inventory valuation).
∙ A number of overhead activity cost pools are used, each of which is allocated to products
and other cost objects using ABC’s own unique measure of activity or driver.
∙ The allocation bases differ from those used in the traditional costing method.
∙ The activity rates may be based on the level of activity at normal capacity rather than on
the budgeted level of activity.
2
