Abc Costing Essay

1446 Words Feb 17th, 2009 6 Pages
Coverdrive Ltd

Case Study: Activity Based Costing

Situation

At a recent management meeting at Coverdrive Ltd, the members of the senior management team discussed the introduction of a new product to the company’s range of high quality, hand made cricket bats. A major agenda item was pricing. The management accountant, since his appointment, had given much thought to pricing policy and one of his concerns was that of dealing with the recovery of overhead within a full cost pricing policy.

The discussion centred around the traditional method currently in use, compared and contrasted with ABC, Activity Based Costing a technique which re-examines the problem that has faced accountants for decades – that of allocation and
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2003, had been complete and the predetermined figures were:

|Cost Centre |Machining |Finishing |Packing |
| | | | |
|Overhead | £140,000 | £55,000 | £30,000 |
|Machine hours | 26,000 | 12,500 | |
|Direct labour hours | | | 6,500 |
|Overhead recovery rate per hour or m/c hour | £5.38 | £4.40 | £4.62 |

The new product the “Superdrive” is estimated to take the following standard hours to produce per unit:

| |Machining |2.75 | |
| |Finishing |1.30 | |
| |Packing |0.50 | |
| | |4.55 |STD

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