pathfinder - The Institute of Chartered Accountants of Nigeria

PATHFINDER(c)(d)Describe TWO circumstances in which the Activity Based Costing would be amore appropriate approach to product costing than traditional procedures tooverhead absorption.(4 Marks)The budgeted production overhead for the coming period of XYZ Limited‟sproduction department has been analysed as follows:NRents, rates, power and depreciation 26,000Set-up costs 15,000Goods inwards 9,600Finished goods inspection 5,250Despatch 9,75065,600You also ascertained that the cost drivers for the overhead activities in order tomake costing reflect the usage of resources are as follows:Cost Pool Cost Driver Budgeted driveractivity for theperiodRent, rates, power & depreciation Machine hours 1,640Set-up costs Number of production runs 30Good-inwards cost Number of requisitions 120Finished goods inspection cost Number of production runs 30Despatch costs Number of sales orders 60You are required to:Calculate the budgeted cost driver rate for each overhead activity. (6 Marks)(Total 15 Marks)INTERMEDIATE EXAMINATION - NOVEMBER 201115