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

question 4

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 overhead cost for product A using the number of hours to apply overhead

• A)£16,667
• B)£50,000
• C)£21,667
• D)£21,000

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Definitions:

Expected Payoff

The predicted return of an investment, calculated by aggregating the potential outcomes weighted by their probabilities.

Opportunity Loss Table

A tabular representation that shows the potential losses for various decisions under different states of nature.

Payoff Table

A decision-making tool used in statistics and economics to display potential outcomes and their respective rewards or payoffs.

Electric Company

A business entity that generates, transmits, and/or distributes electricity to consumers and businesses.