[Sashastar]

Hi everyone, I'm a business student working through exam papers in preparation for my year 1 finals. I'm looking at activity based costing and I'm stuck on a question maybe one of you experts could help me with.

Huphill Ltd has recently introduced an activity based costing system to assist with the provision of management information. An initial costing exercise has produced the following information:

Cost Pool Cost Driver Annual Projection
Customer Service No of Customer Orders 600 orders
Milling Room No of CNC Machine Hours 27,000 hours
Product Testing No of testing hours 4,800 hours
Sales & Marketing No of sales calls 1,375 calls

Annual estimates of costs

Salaries & wages 400,000
Premises costs 240,000
Admin costs 172,000
Depreciation 150,000

Cost Pool Apportionments-Customer Service/Milling Room/Product Testing/Sales & Marketing
Salaries & Wages 20% 40% 30% 10%
Premises costs 10% 50% 25% 15%
Admin costs 30% 20% 20% 30%
Depreciation 20% 50% 25% 5%

Oth cost allocations
Indirect Materials 8,000 26,800 12,000 13,650
Health & Safety costs 5,000 5,000 2,500 2,500

Uphill Ltd has received one new order which entails 50 hours of CNC machining and 5 hours of product testing. The order has resulted from 3 sales calls.

Requirement;
a) Briefly outline the main problems associated with traditional costing techniques
b) Prepare a statement calculating the activity based overhead absorption rates
c) Provide a costing for a new order based on:
I) A mark up of 15% on calculated cost
ii) A margin of 20% on sales price

Oh gosh, I actually feel a little sick inside after typing all that up because it means nothing to me although it's been covered apparently in classes! Eek for the exams.