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:

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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:

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