Question:
XYZ Ltd has collected the following data for its two activities. It calculates activity cost rates based on cost-driver capacity:
|
Activity:
|
Cost driver
|
Capacity
|
Cost (Rs.)
|
|
Power:
|
Kilowatt hours
|
20,000 k.w. hrs
|
1,00,000
|
|
Quality inspection:
|
Number of inspections
|
5,000 Inspection
|
2,00,000
|
The company makes three products X, Y and Z. For the year ended 31 March 2010, the following consumption of cost driver was reported:
|
Kilowatt
|
Quality
|
|
Product
|
Hours
|
Inspection
|
|
x
|
5,000
|
2,000
|
|
Y
|
3,000
|
1,000
|
|
Z
|
2,000
|
1,000
|
Required:
1.Compute the costs allocated to each product from each activity
2.Calculate the cost of unused capacity for each activity
3.Discuss the factors the management considers in choosing a capacity level to compute the budgeted faxed overhead cost rate.