1. Image Furnishing manufactures a variety of premium board room chairs. It used an ABC approach.

Direct costs consist of direct materials & direct manufacturing labour. Indirect costs consist of
costs accumulated by three activity areas at the plant.
Allocation Rate
Activity Allocation Base (Rs.)
Material Handling Parts 0.25
Cutting Parts 2.50
Assembly Manf. Labor Hours 25.00

2 styles of chairs were produced in March. Details are as follows:

Direct
No of Direct Number of
Type Manufacturing
Chairs Material Costs Parts
Labour Hours
Executive 5,000 600,000 100,000 7,500
Chairman 100 25,000 3,500 500

The direct manufacturing labour rate is Rs 20/hour. There is no opening or closing inventory of
chairs. Calculate total manufacturing costs & unit cost for each type of chair.

2. Family Stores wants information about profitability of individual product lines soft drinks, fresh
produce & packaged food. Details for current year are as follows:

Soft Fresh Packaged

Drinks Produce Food

Sales 793,500 2,100,600 1,290,000

CoGS 600,000 1,500,000 900,000
Cost of Bottles Returned 12,000 - -
Items Sold 126,000 1,104,000 306,000
No. of purchase orders placed 360 840 360
No of deliveries received 300 2,190 660
Hours of shelf stocking time 540 5,400 2,700

Other details are as follows:

Activity Description Total Cost

Bottle Returns Returning of empty bottles 12,000

Ordering Placing of orders for purchases 156,000
Delivery Physical receipt & delivery of goods 252,000
Shelf stocking Placing goods on store shelf 172,800
Customer support Assistance to customers including checkout 307,200

Calculate profit for each product line.

 3. Aptech Computers manufactures 12 different models of mouse devices as several other types of
computer components. They use ABC to allocate manufacturing overheads to products.
Data related to 1 product (wireless mouse) & ABS cost pools is as follows:
Wireless Mouse: Annual production 20,000 units, Direct Materials Rs 310/ut, Direct Labour-
Rs 60/ut.

Annual Activity - Annual Activity -

Cost Pool Annual Cost Cost Driver
All Products Wireless Mouse

Materials Ordering 8,000,000 No of purchase orders 1,000,000 orders 10,000 orders

Material Inspection 4,000,000 No of receiving reports 20,000 reports 3,000 reports

Equipment Setup 20,000,000 No of setups 1,000 setups 10 setups

Quality Control 9,000,000 No of inspections 40,000 inspections 4,000 inspections

Others 150,000,000 Direct Labour Cost 1,000,000 hours 120,000 hours

Calculate total unit cost for the wireless mouse.

4. Montex Pen manufactures different types of types Blue, Black, Red and Purple. Details for the
current year are as follows.

Blue Black Red Purple

Sales Volume 25,000 20,000 4,500 500
Selling Price/ut 45.00 45.00 46.50 49.50
Direct Material Costs 375,000 300,000 70,200 8,250
Direct Labour Costs 150,000 120,000 27,000 3,000
Production Runs 70 65 50 15
Total setup time (hours) 280 156 280 84
Machine hours/unit 0.10 0.10 0.10 0.10

Total Overheads consisted of:

Indirect Labour 300,000
Fringe Benefits 240,000
Computer Expenses 150,000
Machinery 120,000
Maintenance 60,000
Energy 30,000
In the traditional costing system, overheads were allocated to the 4 products in proportion to the
direct labour charges.

Activity details & expenses are shown as follows:

 Handle Run
Support
Overhead Cost Production Set up Machine
Machines
Runs Products

Indirect Labor & 50% of Fringe Benefits 50% 40% 10%

Computer Expenses 80% 20%
Machinery 100%
Maintenance 100%
Energy 100%

Activity cost driver rates are as follows:

Activity Cost Driver Rate/cost driver

Handle Production Runs No. of Production Runs Rs 1,650 per run
Set up No. of set up hours Rs 210 per set up hour
Support Machines No. of Products Rs 18000 per product
Run Machine Products No. of Machine hours Rs 2.10 per machine hour

Calculate profits using ABC.