4 Jola Publishing Co publishes two forms of book.
The company publishes a children’s book (CB), which is sold in large quantities to government controlled schools.
The book is produced in only four large production runs but goes through frequent government inspections and quality
assurance checks.
The paper used is strong, designed to resist the damage that can be caused by the young children it is produced for.
The book has only a few words and relies on pictures to convey meaning.
The second book is a comprehensive technical journal (TJ). It is produced in monthly production runs, 12 times a
year. The paper used is of relatively poor quality and is not subject to any governmental controls and consequently
only a small number of inspections are carried out. The TJ uses far more machine hours than the CB in its production.
The directors are concerned about the performance of the two books and are wondering what the impact would be
of a switch to an activity based costing (ABC) approach to accounting for overheads. They currently use absorption
costing, based on machine hours for all overhead calculations. They have accurately produced an analysis for the
accounting year just completed as follows:
CB TJ
$per unit $per unit $per unit $per unit
Direct production costs
Paper 0·75 0·08
Printing ink 1·45 4·47
Machine costs 1·15 1·95
3·35 6·50
Overheads 2·30 3·95
Total cost 5·65 10·45
Selling price 9·05 13·85
Margin 3·40 3·40
The main overheads involved are:
Overhead % of total overhead Activity driver
Property costs 75·0% Machine hours
Quality control 23·0% Number of inspections
Production set up costs 2·0% Number of set ups
If the overheads above were re-allocated under ABC principles then the results would be that the overhead allocation
to CB would be $0·05 higher and the overhead allocated to TJ would be $0·30 lower than previously.
Required:
(a) Explain why the overhead allocations have changed in the way indicated above. (8 marks)
(b) Briefly explain the implementation problems often experienced when ABC is first introduced. (4 marks)
8
The directors are keen to introduce ABC for the coming year and have provided the following cost and selling price
data:
1. The paper used costs $2 per kg for a CB but the TJ paper costs only $1 per kg. The CB uses 400g of paper for
each book, four times as much as the TJ uses.
2. Printing ink costs $30 per litre. The CB uses one third of the printing ink of the larger TJ. The TJ uses 150ml of
printing ink per book.
3. The CB needs six minutes of machine time to produce each book, whereas the TJ needs 10 minutes per book.
The machines cost $12 per hour to run.
4. The sales prices are to be $9·30 for the CB and $14·00 for the TJ
As mentioned above there are three main overheads, the data for these are:
Overhead Annual cost for the coming year
$
Property costs 2,160,000
Quality control 668,000
Production set up costs 52,000
––––––––––
Total 2,880,000
––––––––––
The CB will be inspected on 180 occasions next year, whereas the TJ will be inspected just 20 times.
Jola Publishing will produce its annual output of 1,000,000 CBs in four production runs and approximately 10,000
TJs per month in each of 12 production runs.
Required:
(c) Calculate the cost per unit and the margin for the CB and the TJ using machine hours to absorb the
overheads. (5 marks)
(d) Calculate the cost per unit and the margin for the CB and the TJ using activity based costing principles to
absorb the overheads. (8 marks)
(25 marks)

4 Jola Publishing
(a) The first thing to point out is that the overhead allocations to the two products have not changed by that much. For example
the CB has absorbed only $0·05 more overhead. The reason for such a small change is that the overheads are dominated
by property costs (75% of total overhead) and the ‘driver’ for these remains machine hours once the switch to ABC is made.
Thus no difference will result from the switch to ABC in this regard.
The major effect on the cost will be for quality control. It is a major overhead (23% of total) and there is a big difference
between the relative number of machine hours for each product and the number of inspections made (the ABC driver). The
CB takes less time to produce than the TJ, due to the shortness of the book. It will therefore carry a smaller amount of
overhead in this regard. However, given the high degree of government regulation, the CB is subject to ‘frequent’ inspections
whereas the TJ is inspected only rarely. This will mean that under ABC the CB will carry a high proportion of the quality
control cost and hence change the relative cost allocations.
19
The production set up costs are only a small proportion of total cost and would be, therefore, unlikely to cause much of a
difference in the cost allocations between the two products. However this hides the very big difference in treatment. The CB
is produced in four long production runs, whereas the TJ is produced monthly in 12 production runs. The relative proportions
of overhead allocated under the two overhead treatments will be very different. In this case the TJ would carry much more
overhead under ABC than under a machine hours basis of overhead absorption.
(b) There are many problems with ABC, which, despite its academic superiority, cause issues on its introduction.
– Lack of understanding. ABC is not fully understood by many managers and therefore is not fully accepted as a means
of cost control.
– Difficulty in identifying cost drivers. In a practical context, there are frequently difficulties in identifying the appropriate
drivers. For example, property costs are often significant and yet a single driver is difficult to find.
– Lack of appropriate accounting records. ABC needs a new set of accounting records, this is often not immediately
available and therefore resistance to change is common. The setting up of new cost pools is needed which is time
consuming.
(c) Cost per unit calculation using machine hours for overhead absorption
$CB $TJ
Paper (400g at $2/kg) 0·80 (100g at $1/kg) 0·10
Printing (50ml at $30/ltr) 1·50 (150ml at $30/ltr) 4·50
Machine cost (6 mins at $12/hr) 1·20 (10 mins at $12/hr) 2·00
Overheads (6 mins at $24/hr) (W1) 2·40 (10 mins at $24/hr) 4·00
–––– ––––––
Total cost 5·90 10·60
Sales price 9·30 14·00
–––– ––––––
Margin 3·40 3·40
–––– ––––––
(W1) Workings for overheads:
Total overhead $2,880,000
Total machine hours
(1,000,000 x 6 mins) + (120,000 x 10 mins) = 7,200,000 mins
Which is 120,000 hours
Cost per hour =
$2,880,000
––––––––––––– = $24/hr
120,000 hrs
Cost per unit calculations under ABC
CB TJ
$ $
Paper (400g at $2/kg) 0·80 (100g at $1/kg) 0·10
Printing (50ml at $30/ltr) 1·50 (150ml at $30/ltr) 4·50
Machine cost (6 mins at $12/hr) 1·20 (10 mins at $12/hr) 2·00
Overheads (W2) 2·41 (W2) 3·88
–––– ––––––
Total cost 5·91 10·48
Sales price 9·30 14·00
–––– ––––––
Margin 3·39 3·52
–––– ––––––
(W2) Working for ABC overheads alternative:
Total CB TJ No of drivers Cost/driver CB TJ
$ $ $
Property costs 2,160,000 1,800,000 360,000 120,000 18/hr 1·80 3·00
Quality control 668,000 601,200 66,800 200 3340 0·6012 0·56
Production set up 52,000 13,000 39,000 16 3250 0·013 0·325
–––––––––– –––––––––– –––––––– ––––––– ––––––
Total 2,880,000 2,414,200 465,800 Cost per unit 2·41 3·88
Production level 1,000,000 120,000 ––––––– ––––––
Cost per unit 2·41 3·88
––––––– ––––––
The above overheads have been split on the basis of the following activity levels
Driver CB TJ
Property costs Machine hours 100,000 20,000
Quality control Inspections 180 20
Production set up Set ups 4 12
A cost per driver approach is also acceptable.

好像是08年6月真题

TKS!