Problem 4.1
A B
Annual volume produced: 300000 300000
Mat. H. Mat. P. Set-up Maint.
Costs allocated to activities: 1500000 2000000 1500000 2500000
Use of activities: 2540 6500 624 30000
Cost driver rates: 590.5511811 307.69230769 2403.846 83.333333333
Costs allocated to A: 200787.40157 153846.15385 57692.31 1000000
Costs allocated to B: 1299212.5984 1846153.8462 1442308 1500000
Cost price per unit A: 13.100347338
Cost price per unit B: 36.899652662
Problem 4.2
Costs of the service department's support activities: 1596000
Total sales revenu from copy charges: 8880000
Overhead rate: 18%
Profit = revenu - costs
Small Medium Large
Revenu 1800 4800 9000
Costs parts 500 2100 5600
Costs labour 300 560 1400
Costs overhead 323.5135 862.7027 1617.568
Profit 676.4865 1277.297 382.4324
Customer accouPlanned mainteUnplannedSpare part pro
Costs allocated to activities: 126000 480000 147000 243000
Use of activities: 800 12000 2100 2700
Cost driver rates: 157.5 40 70 90
Costs allocated to Small: 23625 48000 21000 45000
Costs allocated to Medium: 63000 192000 56000 108000
Costs allocated to Large: 39375 240000 70000 90000
Overhead costs per Small machine: 833.75 Profit per Small machine:
Overhead costs per Medium machine: 898.75 Profit per Medium machine:
Overhead costs per Large machine: 1253.75 Profit per Large machine:
Revenu per Small machine: 1800
Revenu per Medium machine: 4800
Revenu per Large machine: 9000
Tr. Cost. ABC Difference
Small 676.4865 166.25 -75%
, Medium 1277.297 1241.25 -3%
Large 382.4324 746.25 95%
In a traditional system, high-volume products are over-costed and low-volume products are under-costed.
Problem 4.3
Question 1)
Making Packing Total
Variable 350000 280000 630000
Fixed 210000 140000 350000
* Product-specific (40%) 84000 56000 140000
* Company fixed costs (60%) 126000 84000 210000
Product information BIG BANG Total
Production time per unit
* Making (minutes) 5.25 5.25
Total making (minutes) 26250 15750 42000
Packing (minutes) 6 4
Total packing (minutes) 30000 12000 42000
Production sales (units) 5000 3000 8000
Selling price per unit (€) 150 180
Direct material cost per unit (€) 30 30
Estimated time-based rates
Making (€/min) € 8.33
* Product-specific (€/min) € 2.00
* Fixed costs (€/min) € 3.00
Packing (€/min) € 6.67
* Product-specific (€/min) € 1.33
* Fixed costs (€/min) € 2.00
BIG BANG
Making (variable + product-specific) € 271,250.00 € 162,750.00
Packing (variable + product-specific) € 240,000.00 € 96,000.00
Fixed making costs € 78,750.00 € 47,250.00
Fixed packing costs € 60,000.00 € 24,000.00
Total fixed costs € 138,750.00 € 71,250.00
Costs per unit € 130.00 € 110.00
Direct material € 30.00 € 30.00
Total costs per unit € 160.00 € 140.00
Question 2)
The advice would be to start selling more of BANG and stop selling BIG as BANG has a higher profit margin (180-140=40) th
Question 3)
BIG BANG Total
Temperature (moulding) 2 1 3
Material consistency (trimming) 2 5 7
A B
Annual volume produced: 300000 300000
Mat. H. Mat. P. Set-up Maint.
Costs allocated to activities: 1500000 2000000 1500000 2500000
Use of activities: 2540 6500 624 30000
Cost driver rates: 590.5511811 307.69230769 2403.846 83.333333333
Costs allocated to A: 200787.40157 153846.15385 57692.31 1000000
Costs allocated to B: 1299212.5984 1846153.8462 1442308 1500000
Cost price per unit A: 13.100347338
Cost price per unit B: 36.899652662
Problem 4.2
Costs of the service department's support activities: 1596000
Total sales revenu from copy charges: 8880000
Overhead rate: 18%
Profit = revenu - costs
Small Medium Large
Revenu 1800 4800 9000
Costs parts 500 2100 5600
Costs labour 300 560 1400
Costs overhead 323.5135 862.7027 1617.568
Profit 676.4865 1277.297 382.4324
Customer accouPlanned mainteUnplannedSpare part pro
Costs allocated to activities: 126000 480000 147000 243000
Use of activities: 800 12000 2100 2700
Cost driver rates: 157.5 40 70 90
Costs allocated to Small: 23625 48000 21000 45000
Costs allocated to Medium: 63000 192000 56000 108000
Costs allocated to Large: 39375 240000 70000 90000
Overhead costs per Small machine: 833.75 Profit per Small machine:
Overhead costs per Medium machine: 898.75 Profit per Medium machine:
Overhead costs per Large machine: 1253.75 Profit per Large machine:
Revenu per Small machine: 1800
Revenu per Medium machine: 4800
Revenu per Large machine: 9000
Tr. Cost. ABC Difference
Small 676.4865 166.25 -75%
, Medium 1277.297 1241.25 -3%
Large 382.4324 746.25 95%
In a traditional system, high-volume products are over-costed and low-volume products are under-costed.
Problem 4.3
Question 1)
Making Packing Total
Variable 350000 280000 630000
Fixed 210000 140000 350000
* Product-specific (40%) 84000 56000 140000
* Company fixed costs (60%) 126000 84000 210000
Product information BIG BANG Total
Production time per unit
* Making (minutes) 5.25 5.25
Total making (minutes) 26250 15750 42000
Packing (minutes) 6 4
Total packing (minutes) 30000 12000 42000
Production sales (units) 5000 3000 8000
Selling price per unit (€) 150 180
Direct material cost per unit (€) 30 30
Estimated time-based rates
Making (€/min) € 8.33
* Product-specific (€/min) € 2.00
* Fixed costs (€/min) € 3.00
Packing (€/min) € 6.67
* Product-specific (€/min) € 1.33
* Fixed costs (€/min) € 2.00
BIG BANG
Making (variable + product-specific) € 271,250.00 € 162,750.00
Packing (variable + product-specific) € 240,000.00 € 96,000.00
Fixed making costs € 78,750.00 € 47,250.00
Fixed packing costs € 60,000.00 € 24,000.00
Total fixed costs € 138,750.00 € 71,250.00
Costs per unit € 130.00 € 110.00
Direct material € 30.00 € 30.00
Total costs per unit € 160.00 € 140.00
Question 2)
The advice would be to start selling more of BANG and stop selling BIG as BANG has a higher profit margin (180-140=40) th
Question 3)
BIG BANG Total
Temperature (moulding) 2 1 3
Material consistency (trimming) 2 5 7
