Class 4: Cost allocation, job costing and ABC 1. Kingsway Ltd. You have been asked to suggest a method of deducing the full cost of various...

Answer download
More Details:

Hi, I really need your help. I have a cost accounting question that I need to submit in a few hours.  I have attached the file and you only need to answer the 3 question on ABC bank. Please answer all parts of question 3. The price is $25 dollars and is negotiable. 

Class 4: Cost allocation, job costing and ABC


1. Kingsway Ltd.


You have been asked to suggest a method of deducing the full cost of various production orders of


Kingsway Ltd. This method will be used as a basis for setting prices. The production orders vary greatly


in size and nature from one to the next.


The following information has been taken from the budget for the forthcoming financial year: Direct labour hours:


Machine hours 100,000 hours


90,000 hours Manufacturing costs:




Direct materials


Machine maintenance and repairs


Factory heat and light


Lubricants and cleaning materials


Direct labour




factory buildings




Indirect labour £




















1,520,000 The business is not departmentalised for accounting purposes.


All direct labour is paid the same hourly rate.




1. Explain the difference between direct and indirect costs. Give an example of each. Can a given


cost item be both a direct cost and an indirect cost? Why do managers distinguish between


direct costs and indirect costs?


2. Calculate two feasible overhead rates for the year.


3. Prepare full costings for Order No 101 using each of the rates calculated in (2) (that is, two


separate costings).


The cost sheet for Order No 101 shows the following:


Raw materials




Direct labour hours 4,000 hours Machine hours 1,900 hours. 4. State briefly which of the two bases of overheads you prefer and why. How might you improve on


the two possible costs that you derived in (3) by taking a slightly different approach? 13 2. Edgware Insight


Edgware Insight provides outsourcing services and advice to both government and corporate clients.


For costing purposes, Edgware Insight classifies its departments into two support departments


(Administrative/ Human Resources and Information Systems) and two operating departments


(Government Consulting and Corporate Consulting). For the first quarter of this year, Edgware Insight


incurs the following costs in its four departments:


Administrative/Human Resources (A/HR) £50,000 Information Systems (IS) £280,000 Government Consulting (GOVT) £875,600 Corporate Consulting (CORP) £1,245,200 The actual level of support relationships among the four departments for the first quarter of this year






IS A/HR IS GOVT CORP - 35% 40% 25% 20% - 20% 60% The Administrative/Human Resource support percentages are based on headcount. The Information


Systems support percentages are based on actual hours of computer time used.




1. Allocate the two support department costs to the two operating departments using the


following methods:


(a) Direct method


(b) Step-down method (allocate Administrative/Human Resources first)


(c) Step-down method (allocate Information Systems first).


Compare and explain the differences in the support department costs allocated to each operating




2. What criteria could determine the sequence for allocating support departments using the stepdown method? What criterion should Edgware Insight use if government consulting jobs require


the step-down method for tendering purposes?


3. Why do conventional product costing systems allocate support department costs first to the


operating departments before assigning them to individual jobs?


Clearly show your workings. 14 3. ABC Bank (collected for marking)


ABC Bank is a multinational bank with headquarters in London. It has three major divisions:


investment, retail, and commercial banking. During the financial crisis and the subsequent economic


downturn the bank has come increasingly under pressure to reduce cost and to determine


competitive prices. To meet that objective, ABC bank is developing an activity-based cost system for


its cashier department which is part of the retail banking division. A task force has identified five


different activities: (1) the processing of deposits, (2) the processing of withdrawals, (3) answering


customer inquiries, (4) selling negotiable instruments, and (5) the balancing of cash registers. By


tracing the costs of operating the cashier department to these five activities, the task force has


compiled the following information regarding support costs and activities for one of its branches: Support Activity


Processing deposits


Processing withdrawals


Answering inquiries


Selling negotiable instruments


Balancing cash registers Estimated Cost












£134,580 Quantity










1,950 The task force has developed the following list of activities which are undertaken in connection with


the “Retirement Plus Account”, a current account product marketed to retired persons:


Support Activity Average monthly volume per current account Processing deposits 3.5 Processing withdrawals 6.5 Answering inquiries 3.1 Selling negotiable instruments 1.0 Required:


a) Calculate the total monthly support costs for the “Retirement Plus Account” product. [4 marks] b) How can the information from the activity-based costing system guide improvements in


operations and decisions at ABC Bank? Explain and discuss with reference to the calculations you


made above. [8 marks] c) Why should managers worry about product over- or undercosting? Explain and discuss. [4 marks] d) ‘Increasing the number of indirect-cost pools is guaranteed to sizably increase the accuracy of


product, service or customer costs.’ Do you agree? Explain and discuss. [4 marks] Your discussion in (c) and (d) should use the case of ABC bank as an illustrative example. Clearly state


any assumptions you make. 15


Solution details:

This question was answered on: Dec 18, 2020

PRICE: $15 (25.37 KB)

Buy this answer for only: $15

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free solution (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .

About this Question






Dec 18, 2020





We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.