60.1K

Verified Solution

Link Copied!

Jola Publishing Co publishes two forms of book. The company publishes a children's book (CB), which is sold in large quantities to government controlled schools. The book is produced in four large production runs. The second book is a comprehensive technical journal (TJ). It is produced in monthly production runs, 12 times a year. The directors are concerned about the performance of the two books and are wondering what the impact would be of a switch to an activity based costing (ABC) approach to accounting for overheads. They currently use absorption costing, based on number of books produced for all overhead calculations. Overheads amount to $2,880,000. The CB will be inspected on 180 occasions next year, whereas the TJ will be inspected just 20 times. Machine time per unit is 6 minutes for the CB and 10 minutes for the TJ. Jola Publishing will produce its annual output of 1,000,000 CBs in four production runs and approximately 10,000. TJs per month in each of 12 production runs. The overheads involved have been analysed as follows: Overhead Production costs Quality control Production set up costs $ Activity driver 2,160,000 Machine hours 668,000 Number of inspections 52,000 Number of set ups 2,880,000 Required 1. Calculate the overhead cost per unit of the CB using the current system of absorption costing. 2. Calculate the total activity based allocation of production overheads for production of the CB. 3. Calculate the total activity based allocation of quality control overheads for production of the TJ.

Answer & Explanation Solved by verified expert

See Answer