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Management accounting

al Overhead Cost 9,600,000 No. Units 2,000 Overhead Rate per unit 4,800 Roadster   DLH Assigned 220,000 Overhead Rate 48 Total Overhead Cost 10,560,000 No. Units 1,600 Overhead Rate per unit 6,600 Fireball   DLH Assigned 80,000 Overhead Rate 48 Total Overhead Cost 3,840,000 No. ...
0 1,350 Overhead Cost per unit     9,036,000 4,518 Fireball (400 units) Activities Activity Rate Activity Level Total Overhead Overhead per unit     Number of deliveries to retailers 19,200 70 1,344,000 672 Number of set-ups 120,000 25 3,000,000 1,500 Number of purchase orders 9,000 100 900,000 450 Overhead Cost per unit     5,244,000 2,622   Sunshine Roadster Fireball Selling Price 8,000 12,000 16,000 Direct Material 800 1,200 1,800 Direct Labor 1,000 1,375 2,000 Overhead 4,860 4,518 2,622 Total Variable Cost 6,660 7,093 6,422 Contribution Margin 1,340 4,907 9,578 b) In not more than 1,500 words write a report to the directors of Sober plc, as its management accountant. The report should: (i) Evaluate the labor hours and the activity based costing methods in the circumstances of Sober plc. Volume Based Costing Under the existing circumstances of Sober plc, direct labor hours is used as a basis for volume based costing throughout all the three ranges of the bikes. Overheads are allocated to each product on the basis of direct labor hours such that overhead rate is computed to be ?48 per hour. That rate is then multiplied by the number of hours taken by each product to obtain the total overhead cost pertaining to each product. Each product’s overhead cost in then divided by the number of units of the corresponding product to obtain overhead rate per unit. In this way, Fireball has the maximum overhead rate of ?9,600 whereas the overhead rates for roadster and sunshine remained at ?6,600 and ?4,800 respectively. It is important to note that the biggest reason behind the relatively overhead rate per unit of Fireball is the less number of units produced. Its total overhead cost is however the lowest among all the three products. (Lal, 2009) If the Contribution ...Show more

Summary

(a) Calculate the total profit on each of Sober plc’s three types of product using each of the following methods to attribute overheads: (i) The existing method based upon labor hours; and (ii) Activity Based Costing. i) Volume Based Costing using Direct Labor Hours Overheads Overheads Cost Deliveries to retailers 4,800,000 Set-up costs 12,000,000 Purchase orders 7,200,000 Total Overhead Cost 24,000,000 Product Total Labor Hours Labor Hours per unit Labor Rate per unit Sunshine 200,000 100 1,000 Roadster 220,000 138 1,375 Fireball 80,000 200 2,000 Total DLH 500,000 Total Overhead Cost 24,000,000 Total DLH 500,000 Overhead Rate per DLH 48 Sunshine   DLH Assigned 200,000 Overhead Rate 48 Tot…
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