Riptide plc

The Managing Director at Riptide plc has commented to you that he believes that Activity Based Costing is often implemented because it’s fashionable and not because it provides extra information to management. Discuss the above statement.

ASB 4420 Assignment
You have been appointed as the management accountant at Riptide Plc and have
been asked to provide information on overhead absorption.
The following budgeted information relates to the forthcoming period:
Products
XYI
(000)
YZT
(000)
ABW
(000)
Sales and production (units) 50 40 30
£ £ £
Selling price (per unit) 45 95 73
Variable cost (per unit) 32 84 65
Hours Hours Hours
Machine department (machine hours per unit) 2 5 4
Assembly department (direct labour hours per
unit)
7 3 2
Overheads allocated and apportioned to production departments were as follows:
Machine department £504,000
Assembly department £437,000
You ascertain that the above overheads could be re-analysed into ‘cost pools’ as
follows:
Cost pool £000 Cost driver Quantity for the period
Machining services 357 Machine hours 420,000
Assembly services 318 Direct labour hours 530,000
Set-up costs 26 Set-ups 520
Order processing 156 Customer orders 32,000
Purchasing 84
___
Suppliers’ orders 11,200
941
___
You have also been provided with the following estimates for the budget period:
Products
XYI YZT ABW
Number of set-ups 120 200 200
Customer orders 8,000 8,000 16,000
Suppliers’ orders 3,000 4,000 4,200
Required:
1. Prepare and present budgeted profit statements using:
(a) conventional absorption costing; and 15%
(b) activity based costing (ABC) 30%
(c) Comment on these results. 15%
2. The Managing Director at Riptide plc has commented to you that he believes
that Activity Based Costing is often implemented because it’s fashionable and
not because it provides extra information to management.
Discuss the above statement. 40%

The word count for part 2, should not exceed 2000 words

 
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