Question

wing costs have been HEN AEN has a single production process, for which the following coste estimated for the period ending 31st December Year 7: GH¢ Material receipt and inspection costs 31,200 Power costs 39,000 Material handling costs 27,300 HEN makes three products - X, Y and Z. These products are made by group of employees, using power drills. The employees are paid GH¢8 The following budgeted information has been obtained for the period endir December Year 7: ade by the same GH¢8 per hos period ending 318 Product Product Produc х Y Production quantity (units) Batches of material 2,000 10 1,500 5 800 15 or For each unit of product: Direct material (metres) 6 25 Direct material cost (GH¢) Direct labour (minutes) Number of power drill operations (per unit) Overhead costs are currently absorbed into the cost of production units using an absorption rate per direct labour hour. A factory-wide absorption rate is used for work in all the production departments. An activity based costing investigation has revealed that the cost drivers for the overhead costs are as follows: Material receipt and inspection: number of batches of material Power: number of power drill operations Material handling: quantity of material (metres) handled. Required: Calculate the cost driver rate for power.

Answer 1

Solution : - Since in the given question Cost driver rate is asked for Power only, hence we will calculated power drill cost only.

Calculation of Total No. of Power Drill Operations

Product	No. of Power Drill operations per Unit	Production Quantity	No. of Power Drill operations
	I	II	III = I X II
X	8	2000	16000
Y	4	1500	6000
Z	5	800	4000
Total No. of Power Drill Operations	26000

Overhead Recovery rate = Total Cost  ÷ No. of Cost drive i.e. No. of Power Drill Operations

= 39000 ÷ 26000 = 1.5

Hence Cost drive rate for Power Cost is GH 1.5 per Drill Operation