Costing Statements using ABC (Cambridge (CIE) A Level Accounting): Revision Note

T and C limited manufacture wooden tables and chairs. The tables are made in batches of 1 000 units. The chairs are made in batches of 200 units.

The monthly production is 8 000 tables and 2 400 chairs.

Here is some more information about tables and chairs

Indirect production costs each month are:

• Machine set up cost - $70 000

Each batch needs a machine set up

The business operates a 20% mark-up

Required - To calculate the cost per unit and selling price per unit for each table and chair using ABC costing.

Answer:

Find the number of set up's needed per month:

Tables = $\frac{8000}{1000}$ = 8 set up's

Chairs = $\frac{2400}{200}$ = 12 set up's

Total number of set up's need = 8 + 12 = 20

Work out the machine set up cost per table

• Find the proportion of the machine set up cost that is for tables

$\frac{\$70000}{20}\times 8=\$28000$

• Find the set up cost per unit per table

$\frac{\$28000}{8000\mathrm{units}}=\$3.50\mathrm{machine}\mathrm{set}\mathrm{up}\mathrm{cost}\mathrm{per}\mathrm{unit}$

Work out the machine set up cost per chair

• Find the proportion of the machine set up cost that is for chairs

$\frac{\$70000}{20}\times 12=\$42000$

• Find the cost drive rate

$\frac{\$42000}{2400\mathrm{units}}=\$17.50\mathrm{machine}\mathrm{set}\mathrm{up}\mathrm{cost}\mathrm{per}\mathrm{unit}$

Remember to include all the cost when calculating the cost per unit. This includes direct and indirect costs.