The following data is for the mixing centre of Acacia Paints for the year Mixing Centre Costs

and Resource Drivers

Wages $ energy $ Depreciation $ Other $ Total Labour and overhead $

Cost 100,000 80,000 20,000 10,000 210,000

Resource Driver Head Count Kilowatt Hours Machine hours Head Count

Amount of Resources driver consumed by the Centre 5 people 10,000 KwH 5,000 machine hours 5 people

Required 1. Complete the following table to calculate the cost of the activity 'Load Mixer' for the current year. This activity is performed in the mixing centre Acacia Paints Ltd Activity: Load Mixer Amount of Resource Driver used to load mixer 5% of total labour time 500 KwH 100 machine hours 5% of total labour time

Cost Category Wages energy Depreciation Other Total Cost

Mixing Ctr Cost $ 100,000 $ 80,000 $ 20,000 $ 10,000 $ 210,000

Cost of Activity 'Load Mixer' $ 5,000 $ 4,000 $ 400 $ 500 $ 9,900

2. Why would Acacia Paints use an activity-based costing system that assigns labour as well as overhead costs to activities? 3. How would the management accountant obtain details of the activities performed and the quantity of resource drivers used by activities in the Mixing Centre?

Cost per activity measure $ $ 8 4

The following data is for the mixing centre of Acacia Paints for the year Mixing Centre Costs and Resource Drivers

Wages energy Depreciation Other Total Labour and overhead

$ $ $ $ $

Cost 100,000 80,000 20,000 10,000 210,000

Resource Driver Head Count Kilowatt Hours Machine hours Head Count

Amount of Resources driver consumed by the Centre 5 people 10,000 KwH 5,000 machine hours 5 people

Required 1. Complete the following table to calculate the cost of the activity 'Load Mixer' for the current year. This activity is performed in the mixing centre Acacia Paints Ltd Activity: Load Mixer Amount of Resource Driver used to load mixer 5% of total labour time 500 KwH 100 machine hours 5% of total labour time

Cost Category Wages energy Depreciation Other Total Cost

Mixing Ctr Cost $ 100,000 $ 80,000 $ 20,000 $ 10,000 $ 210,000

Cost of Activity 'Load Mixer' $ 5,000.00 $ 4,000 $ 400 $ 500.00 $ 9,900.00

2. Why would Acacia Paints use an activity-based costing system that assigns labour as well as overhead costs to activities? Labour is almost 50% of the cost in the mixing centre, so it is important to consider this cost and allocate it as accurately as possible.

3. How would the management accountant obtain details of the activities performed and the quantity of resource drivers used by activities in the Mixing Centre? Wages and other: obtain cost from timesheets, wages records and % of labour to perform the activity from supervisor or mixing centre manager Energy: obtain cost from electricity bills and amount of electricity to perform activity from engineer Depreciation: obtain cost and depreciation rate from fixed assets register/ financial reports and amount of machin from production records

s and amount of machine hours

Calculating cost per unit of activity driver Campbells make a variety of different Soups The following is a list of activities, costs and quantities of activity drivers for the Mixing Centre for the current year Campbells Mixing Centre Activities and Costs Activity Activity cost Activity Driver Weigh ingredients $ 8,000 No of batches Load mixing machine $ 11,000 No of batches Operate mixing machine $ 70,000 No of machine hours Unload mixing machine $ 8,000 No of batches Heat Soup $ 25,000 No of cans Move soup to canning $ 12,000 No of loads Total Cost $ 134,000 Qty of Activity Driver 500 batches 500 batches 3,200 machine hours 500 batches 500,000 cans 2,000 loads

Required 1. Calculate the cost per unit of activity driver for each activity in the Campbells Mixing Centre 2. Explain how these costs are used to calculate the cost of the different soups produced 3. Campbells makes a vegetable soup. The annual production details are as follows:Cost per Activity driver Mixing Centre Cost 80 batches $ 54 $ 4,320 1,000 machine hours $ 21.88 $ 21,875 150,000 cans $ 0.05 $ 7,500 400 loads $ 6 $ 2,400 $ 36,095 Use activity based costing to calculate the Mixing Centre costs for vegetable soup

Cost per Activity driver $ 16 per batch $ 22 per batch $ 21.88 per mach hour $ 16 per batch $ 0.05 per can $ 6 per load

Campbells Mixing Centre

Calculating cost per unit of activity driver Campbells make a variety of different soups The following is a list of activities, costs and quantities of activity drivers for the Mixing Centre for the current year Campbells Mixing Centre Activities and Costs Activity Weigh ingredients Load mixing machine Operate mixing machine Unload mixing machine Heat Soup Move soup to canning Total Cost Activity cost $ 8,000 $ 11,000 $ 70,000 $ 8,000 $ 25,000 $ 12,000 $ 134,000 Activity Driver No of batches No of batches No of machine hours No of batches No of cans No of loads Qty of Activity Driver 500 batches 500 batches 3,200 machine hours 500 batches 500,000 cans 2,000 loads

Required 1. Calculate the cost per unit of activity driver for each activity in the Campbells Mixing Centre Mixing Ctr Qty of Activity Activity Cost Activity Driver Driver Weigh ingredients $ 8,000 No of batches 500 Load mixing machine $ 11,000 No of batches 500 Operate mixing machine $ 70,000 No of machine hours 3,200 Unload mixing machine $ 8,000 No of batches 500 Heat Soup $ 25,000 No of biscuits 500,000 Move soup to canning $ 12,000 No of loads 2,000 Total Cost $ 134,000

2. Explain how these costs are used to calculate the cost of the different soups produced 3. Campbells makes a vegetable soup. The annual production details are as follows 80 batches 1,000 machine hours 150,000 biscuits 400 loads Use activity based costing to calculate the Mixing Centre costs for vegetable soup Vegetable soup Mixing Centre Costs Activity Driver No of batches

Activity Weigh ingredients

Qty of Activity Driver Cost per Activity 80 $ 16.00

Load mixing machine Operate mixing machine Unload mixing machine Heat Soup Move soup to canning Total Cost

No of batches No of machine hours No of batches No of biscuits No of loads

80 1000 80 150000 80

$ $ $ $ $

22.00 21.88 16.00 0.05 6.00

ctivity Driver

chine hours

ells Mixing Centre Cost per Activity $ 16.00 $ 22.00 $ 21.88 $ 16.00 $ 0.05 $ 6.00

per batch per batch per machine hour per batch per biscuit per load

ps produced

Cost $ 1,280.00

$ $ $ $ $ $

1,760.00 21,875.00 1,280.00 7,500.00 480.00 34,175.00

ABC vs volume based cost driver The Telescope company makes mirrors and lenses for large telescopes The company is preparing its annual budget The management accountant estimates the amount of overhead to allocate to each of the product lines based on the following:Lenses Units Produced 25 Mirrors 15 Total

Traditional Costing Predetermined overhead rate (pla Based on total ohead $$/Total bud

ABC Costing Based on activity rate and no of ac

Material handling (number of moves) per product line 5 15 20 Direct labour hours per unit 200 200 Total direct labour hours 5,000 3,000 8,000 The total budgeted material handling cost is $50,000 Material Handling ohd 31,250 18,750 Material handling cost per lens 1,250 1,250 Required 1. Calculate the material handling costs allocated to one lens under a costing system that allocates cost based on Direct labour hours 2. Calculate the material handling costs allocated to one mirror under a costing system that allocates cost based on Direct labour hours 3. Calculate the material handling costs allocated to one lens under activity based costing. The activity driver for material handling activity is the number of material moves 4. Calculate the material handling costs allocated to one mirror under activity based costing.

1.Calc total direct labour hours in 2. Calc predetermined oh rate 3. Use predetermined oh rate and and lenses to calculate oh allocate

Predetermined ohd rate for mater

Material Handling Cost 50,000

Traditional Costing Predetermined overhead rate (plant-wide) Based on total ohead $$/Total budgeted Direct labour hours

Based on activity rate and no of activity

1.Calc total direct labour hours in Factory for the year 2. Calc predetermined oh rate 3. Use predetermined oh rate and direct labour hours for mirrors and lenses to calculate oh allocated to each

Predetermined ohd rate for material handling =50,000/8000 $ 6.25 Material Handling Cost Activity cost driver Cost per activity driver no of moves 20 2,500 per move Lens 5 moves 12,500 Mirror 15 moves 37,500 per lens $ 500 per mirror $ 2,500

ABC vs volume based cost driver The Telescope company makes mirrors and lenses for large telescopes The company is preparing its annual budget The management accountant estimates the amount of overhead to allocate to each of the product lines based on the following:Lenses Units Produced Material handling (number of moves) per product line Direct labour hours per unit 25 Mirrors 15 Labour hrs/unit Traditional Costing Lenses 200

5 200

15 200

The total budgeted material handling cost is $50,000 Required 1. Calculate the material handling costs allocated to one lens under a costing system that allocates cost based on Direct labour hours 2. Calculate the material handling costs allocated to one mirror

Direct Lab hrs/year =200*25 5000 Material Handling =(5000/8000)*50000 31250

Material Handling Activity no of moves

under a costing system that allocates cost based on Direct labour hours 3. Calculate the material handling costs allocated to one lens under activity based costing. The activity driver for material handling activity is the number of material moves 4. Calculate the material handling costs allocated to one mirror under activity based costing.

Traditional Costing Mirrors 200

Total

=200*15 3000 =(5000/8000)*50000 18750

8000

ABC Lenses

Mirrors

5 15 =(5/20)*50000 =(15/20)*50000 12500 37500