Bristol Electronics Produces Wide Range of Electronic Products Data for 3 Products Only

question 10

Multiple Choice

Bristol Electronics produces wide range of electronic products. The company has a labour based costing system that was introduced in the 1970s and is now considering implementing an activity based costing (ABC) system. Managers are concerned about how they should compare the ABC data with the existing costing system.
Selected data from the management accounts for the year ending 31st December 2000
$$\begin{array} { | l | l | } \hline \text { Cost data } & \\\hline \text { Total manufacturing overhead for year } & £ 1,000,000 \\\hline \text { Total hours for year } & 60,000 \text { hours } \\\hline \text { Direct labour cost per hour } & £ 10 \\\hline\end{array}$$
Data for 3 products only
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { F roduct B } & \text { Product C } \\\hline \text { Annual production } & 1,000 \text { units } & 2,000 \text { units } & 5,000 \text { units } \\\hline \text { Material cost per unit } & £ 5.00 & £ 6.00 & £ 7.00 \\\hline \text { Direct labour hours per unit } & 1.00 & 1.50 & 0.50 \\\hline\end{array}$$ $$\begin{array} { | l | r | r | } \hline \text { ABC data for all products } & & \\\hline \text { Cost pool / driver } & \text { Annual costs (£s) } & \text { Annual volume } \\\hline \text { Number of set-ups } & 200,000 & 1,000 \\\hline \text { Inspection time (hours) } & 500,000 & 3,000 \\\hline \text { Machine maintenance (hours) } & 100,000 & 5,000 \\\hline \text { Number of purchases } & 100,000 & 500\\\hline \text { Number of shipments } & 100,000 & 500\\\hline &1,000,000\\\hline\end{array}$$
$$\begin{array} { | l | c | c | c | } \hline \text { ABC data 3 products } & \text { Froduct A } & \text { Froduct B } & \text { Froduct C } \\\hline \text { Number of set-ups } & 20 & 180 & 30 \\\hline \text { Inspection time (hours) } & 20 & 50 & 300 \\\hline \text { Machine maintenance (hours) } & 30 & 40 & 20 \\\hline \text { Number of purchases } & 3 & 4 & 5 \\\hline \text { Number of shipments } & 3 & 4 & 6 \\\hline\end{array}$$
- Determine the total unit cost for product A using the activity based data

• A)£31.00
• B)£46.45
• C)£16.13
• D)£24.13

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Definitions:

Degrees Of Freedom

The count of independent values or quantities that can vary in an analysis without violating any constraints.

Prediction Interval

A range within which a future observation or outcome is expected to fall, with a certain probability.

Simple Linear Regression

A statistical method to model the relationship between two variables by fitting a linear equation to observed data.

Least Squares

A mathematical approach to find the best-fitting curve to a given set of points by minimizing the sum of the squares of the offsets ("the residuals") of the points from the curve.