5.45 - Rs.(48+30.82 ) =Rs 78.82 Q Rs ( 48+15.24 ) =Rs 63.24...

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( A ) Working for apportionment of non -production overhead : Cost driver rates : Total ohd. / total no.) Rate per service Rs. Rs. Inspectio 2,62,500 / 8,750 30 Delivery 2,55,600 / 2,130 120 Salesman visits 74,000 / 185 400 After-sales visits 93,720 / 284 330 6,85,820 Apportionment of non-production overhead on the basis of ABC method (above rate x relative number of service ) Customer P Q R Rs. Rs. Rs. Inspection 2,49,900 12,600 - Delivery 2,49,600 4,800 1,200 Salesmen visit 64,000 8,000 2,000 After-sales visits 52,800 27,720 13,200 Total overhead 6,16,300 53,120 16,400 Units supplied 20,000 15,000 10,000 Non- production overhead per unit 30.82 3.54 1.64 Apportionment of non-production overhead as per practice of Fairdeal as followed hitherto : Total non-production overhead = Rs. 6.85,820 Total units sold = 45,000 Rate per unit (Rs. 6,85,820 / 45,000 ) = Rs. 15.24 Total Cost of Sales on the basis of ABC method applied to non- production overhead P Rs ( 48+15.24 ) =Rs 63.24
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Unformatted text preview: Rs.(48+30.82 ) =Rs 78.82 Q Rs ( 48+15.24 ) =Rs 63.24 Rs.(48+3.5 ) =Rs 51.54 R Rs ( 48+15.24 ) =Rs 63.24 Rs.(48+1.64 ) =Rs 49.64 ( B ) As a practice of the firm , for each unit the production as supplied to the three customers the cost of sales is uniform at Rs. 63.24 p.a., albeit their varying requirments of non -production services.Non-production ser-vice cost vary widely among the customers according to their relative demand for such services. As against the generalized view of the cost od sales under the usual method of distribution of non-production overheads followed by the Fairdeal, the ABC method of apportionment of the service costs reveals the cost of sales to different customers in realistic perspective and offers a better basis of pricing products for Fairdeal. The CEO's fear of non fair deal to customers warrants a closer view....
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This note was uploaded on 02/29/2012 for the course E 101 taught by Professor Sfere during the Spring '12 term at Abilene Christian University.

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