Student Doubts Forum

management accounting

management accounting

by María Camila Lopez Fontana -
Number of replies: 1

I am having doubts  with the cost calculations for Exercise 20.2. I have the following rates:

  • Material handling: 6
  • Setting up: 14.4
  • Operating production: 30
  • Inspection: 4.4

When calculating the costs for the products, I set them up as follows:

Product 1:
1800×6+5000×14.4+1000×30+4000×4.4

Product 2:
200×6+70×14.4+500×30+1000×4.4

However, my results do not match the final answer. Am I missing something in the calculation process? 

Thank you

In reply to María Camila Lopez Fontana

Re: management accounting

by Pedro Pinto da Silva Perdigão -
Hello María,

Your rates are all correct, except for the Setting up rate.

The cost driver for this activity is the Set-up time in hours, and you know that each batch of product A requires 5h and each batch of product B requires 7h. In the beginning of the exercise, you had some information about the batches of each:

  • Product A was produced in batches of 1 000 units -> If production was 10 000 units, that means there were 10 batches
  • Product B was produced in batches of 10 units -> If production was 500 units, that means there were 50 batches
10 * 5h + 50 * 7h = 400 hours. Therefore, your rate will be = 21 000 / 400 = 52,5€

Good study!