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Question 2: Activity-Based Costing (ABC)

Becton Dickinson is the biggest ventilator manufacturer in the world. The company has received a special offer from the government to produce two models of the ventilators: A95 and B95 for Covid 19 patients. Estimates so far show that about 6% of people who have COVID-19 get critically sick and need to use the ventilator.

You have been asked to prepare a costing report based on traditional absorption costing (using the number of units for allocating overhead costs) and activity-based costing (ABC) to determine the accurate production costs for these two new ventilators. The available information concerning the budgeted operations appears below:

Unit cost information	A95	B95
Budgeted units to produce	10,000	4,000
Number of parts needed (per unit)	50	60
Price of parts (per part)	$500	$600
Direct labour time needed to produce per unit (minutes)	20	22
Labour hourly rate	$90	$120

From the centres management information system, you extract the following information on activities, costs, and activity drivers for the current period:

Activity	Expected Cost
Machine set-up (number of set ups)	$8,000,000
Materials ordering (number of orders)	$6,000,000
Machine hours (hours)	$5,400,000
Injection moulding (batches)	$3,500,000
Number of Product design	$1,000,000
Product movements (number of movements)	$4,500,000
Customer order (number of orders)	$360,000
Online monitoring security (hours)	$350,000
Total Overhead	$29,110,000

Activity drivers	Cost hierarchies	A95	B95
Number. of machine set-ups	Batch level	150	250
Number. of material orders	Batch level	1,400	2,600
Machine hours	Batch level	800	1,000
Injection moulding (batches)	Batch level	15	20
Number of Product design	Product level	20	30
Number of product movements	Product level	6,000	9,000
Customer order (number of orders)	Customer level	800	1,000
Online monitoring Security (hours)	Facility level	3,500	3,500

4

Question 2 continued:

Required:

1. Compute the predetermined overhead rate under the absorption costing method and determine the full unit product cost of each product, round the unit costs and all other costs to 2 decimal places.

2. Determine the full unit product cost of each product using the activity-based costing approach and round the unit costs and all other costs to 2 decimal places.

Use actual numbers (with all decimal places) for all calculations but round the final answers to 2 decimal places when answering the numeric questions. Numeric answers must be presented without any explanation, bracket, $, or any positive (+) or negative (-) sign.

(Total marks for the question 48 marks)

You are required to answer the above questions in detail as follows on Canvas (you do not need to answer the above questions separately in another answer sheet):

EN	NO	Questions	Marks
27	1	How much is the overhead rate per unit for A95 under current traditional costing?	3
28	2	How much is the overhead rate per unit for B95 under current traditional costing?	3
29	3	How much is the full product cost per unit for A95 under current traditional costing?	3
30	4	How much is the full product cost per unit for B95 under current traditional costing?	3
31	5	How much is the Unit level cost rate (per unit) for A95 under ABC?	3
32	6	How much is the Unit level cost rate (per unit) for B95 under ABC?	3
33	7	How much is the Batch level overhead rate per unit for A95 under ABC?	3
34	8	How much is the Batch level overhead rate per unit for B95 under ABC?	3
35	9	How much is the Product level overhead rate per unit for A95 under ABC?	3
36	10	How much is the Product level overhead rate per unit for B95 under ABC?	3
37	11	How much is the Customer level overhead rate per unit for A95 under ABC?	3
38	12	How much is the Customer level overhead rate per unit for B95 under ABC?	3
39	13	How much is the Facility level overhead rate per unit for A95 under ABC?	3
40	14	How much is the Facility level overhead rate per unit for B95 under ABC?	3
41	15	How much is the Full unit cost per unit for A95 under ABC?	3
42	16	How much is the Full unit cost per unit for YB95 under ABC?	3
	Total marks for the question		48

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