ACCA PM · Chapter 2 · Question 4 of 9
Delta Co makes two products, X and Y. Budgeted overheads are: machine set-ups $120,000; materials handling $80,000; machining $200,000. Product X: 4,000 units, 2 machine hours per unit, 30 set-ups, 50 material movements. Product Y: 1,000 units, 4 machine hours per unit, 50 set-ups, 110 material movements. By how much does the overhead charged to each unit of product X under ABC differ from the overhead charged using a single factory-wide machine-hour rate (to the nearest cent)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $15.83 lower under ABC
Explanation
ABC overhead for X = (30 x $1,500) + (50 x $500) + (8,000 x $16.6667) = $45,000 + $25,000 + $133,333 = $203,333, or $50.83 per unit. Machine-hour basis = 2 x $33.3333 = $66.67 per unit. ABC therefore charges $15.83 less per unit to the high-volume product X, because the low-volume product Y causes most of the set-ups and handling.
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