Financial Analysis

[Name of the institute]

Calculate the aimed profit percentages for the three products and under the full absorption costing method, with overhead costs absorbed on the basis of direct labor hours.

As per the information provided, the total cost that has been calculated for each of the product has been enumerated below separately:

OVERHEADS

Phone

Tablet

Computer

Utilities

8000000

5000000

7000000

Rent

8250000

2250000

4500000

Audit and legal

2900000

1250000

850000

Administrative staff

23200000

6000000

10800000

Total

42350000

14500000

23150000

 budgeted units

1,500,000

900,000

1,200,000

 per unit overhead

28.23333

16.11111

19.29167

The overhead for every product has been calculated for every product separately as shown above. Now these figures will be added to the other costs of the products so that the actual cost of every product could be found.

TOTAL COST OF EVERY PRODUCT

 

Phone

Tablet

Computer

Direct Material per unit

90

140

315

Direct Labor per unit

16

20

32

overhead cost per unit

28.23333

16.11111

19.29166667

TOTAL

134.2333

176.1111

366.2916667

Full costing price

170.69

233.87

435.67

Profit

36.45667

57.75889

69.37833333

Profit Margin (in Percentage)

27.15918

32.79685

18.94073484

The aimed profit percentage for every product has found to be 27.15% for phones, 32.79% for tablets and 18.94% for computers.

Use the profit percentages that you derived in (1) and calculate the prices of the three products under the ABC system.

ABC offers a useful approach to the accounting system. The structure of Activity Based Costing line up the cost i.e. input through various accounting activities i.e. process which result in output. The fact was the demonstrate results which were feasible and advantageous in term of cost justification, appropriateness of cost allocation for the productiveness and services.

Activity Based Costing (ABC) was implemented due to the reason of the development of ever-increasing overhead rates in the traditional cost accounting. The aim of the activity-based costing was thus the source-related apportionment of direct and indirect overhead costs to products. Hence, the Activity Based Costing (ABC) is a method of cost analysis of an industry or company that provides actual data and the impact of the costs associated with each product and each service or product sold by the company itself, no matter what ...