discuss the factors the management considers in choosing a capacity level to compute 618495
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:
- Compute the costs allocated to each product from each activity
- Calculate the cost of unused capacity for each activity
- Discuss the factors the management considers in choosing a capacity level to compute the budgeted faxed overhead cost rate.