A company is manufacturing four products: A,B,C,D. The traditional costing gave the following results (cost driver: nb of units):

A / B / C / D / suma
Nb of units of sold / 10 000 / 2 000 / 6 000 / 2 000 / 20 000
Unit sellingprice / 2,00 / 4,00 / 6,00 / 3,00
sales / 20 000 / 8 000 / 36 000 / 6 000 / 70 000
Direct cost / 15 500 / 8 100 / 21 700 / 6 700 / 52 000
Indirectcost / 7 000 / 1 400 / 4 200 / 1 400 / 14 000
profit / -2 500 / -1 500 / 10 100 / -2 100 / 4 000

We decide to drop the least profitable product:

B / C / D / total
Nb of units of sold / 2 000 / 6 000 / 2 000
Unit sellingprice / 4,00 / 6,00 / 3,00
sales / 8 000 / 36 000 / 6 000
Direct cost
Indirectcost
profit

We come back to four products and change the cost driver – sales:

A / B / C / D / total
Nb of units of sold / 10 000 / 2 000 / 6 000 / 2 000 / 20 000
Unit sellingprice / 2,00 / 4,00 / 6,00 / 3,00
sales / 20 000 / 8 000 / 36 000 / 6 000 / 70 000
Direct cost
Indirectcost
profit

We give up analysing the indirect cost

A / B / C / D / total
Nb of units of sold / 10 000 / 2 000 / 6 000 / 2 000 / 20 000
Unit sellingprice / 2,00 / 4,00 / 6,00 / 3,00
sales / 20 000 / 8 000 / 36 000 / 6 000 / 70 000
Direct cost / 15 500 / 8 100 / 21 700 / 6 700 / 52 00
Margin/DC
Total margin/DC
koszty ogólne
zysk

We gather information about how much of the direct cost are variable and how much are fixed:

A / B / C / D / total
Nb of units of sold / 10 000 / 2 000 / 6 000 / 2 000 / 20 000
Unit sellingprice / 2,00 / 4,00 / 6,00 / 3,00
Unitary VC / 1,40 / 3,80 / 3,50 / 3,20
sales / 20 000 / 8 000 / 36 000 / 6 000 / 70 000
VC
Margin/VC
Direct fixedcost
Margin/DC
Total margin/DC
Indirectcost
profit

We decide:

- to giveproduct D

- to increase the selling price of product B by 5% and spend 100 on promotion to keep the same numer of units sold.

- we assume that the other two products wiill also keep the same nb of units sold.

chleb razowy / chleb miodowy / paczka rogali / suma
Nb of units of sold / 10 000 / 2 000 / 6 000
Unit sellingprice / 2,00 / 6,00
Unitary VC / 1,40 / 3,80 / 3,50
sales / 20 000 / 36 000
VC
Margin/VC
Direct fixedcost
Margin/DC
Total margin/DC
Indirectcost
Profit
  1. Indirect cost in a given period were equal to 10000. The company manufactured and sold 100 items of product X and 200 items of product Y. The data concerning product Y are as follows:

Product / X (the whole production) / Y (the whole production)
Direct cost / 2000 / 3000
Hours of direct labour / 100 / 400
Machine hours / 300 / 50
Number of production set ups / 2 / 5
Number of raw material deliveries / 4 / 5

1 X was sold for 100$, 1 B for 150 $.

Calculate the cost and the profit given by 1 X and 1 Y

a)According the traditional costing method (allocation basis – number of items)

b)According the traditional costing method (allocation basis – direct labour hours)

c)According to the ABC method, knowing that the indirect cost was distributed between the following activities in the following way:

  1. Activity A: machine maintenance – 60%
  2. Activity B: production setting up - 20%
  3. Activity C: everything linked to raw material deliveries: 20%

2. Indirect cost in a given period were equal to 10000. The company manufactured and sold 100 items of product X and 200 items of product Y. The data concerning product Y are as follows:

Product / X (the whole production) / Y (the whole production)
Direct cost / 2000 / 4000
Hours of direct labour / 800 / 400
Machine hours / 300 / 50
Number of production set ups / 2 / 4
Number of raw material deliveries / 4 / 2

1 X was sold for 100$, 1 B for 150 $.

Calculate the cost and the profit given by 1 X and 1 Y

a)According the traditional costing method (allocation basis – number of items)

b)According the traditional costing method (allocation basis – direct labour hours)

c)According to the ABC method, knowing that the indirect cost was distributed between the following activities in the following way:

  1. Activity A: machine maintenance – 50%
  2. Activity B: production setting up - 30%
  3. Activity C: everything linked to raw material deliveries: 20%