Accounting
a) i) Using direct labour hours as the cost driver for the overhead costs, the following table presents the net profit calculation for each line of motorcycle:
Vroom plc
Total Profit
Driver:
Direct labour
Sunshine
Roadster
Fireball
Output
DL
P
Materials
Revenue
less DL
less Materials
Gross Profit
Less Overhead
Net Profit
Activity-based costing is designed to allocate overhead costs based on the resources that each activity consumes (The Economist, 2009). The key to activity-based costing is that the cost drivers are assigned differently, and in a manner that should better reflect actual resource usage than a cost driver that may be picked almost at random (Investopedia, 2013). Using ABC, the following are the net profit calculations for the three different products at Vroom.
Vroom plc
Total Profit
Driver:
ABC
Sunshine
Roadster
Fireball
Output
DL
100000
110000
40000
250000
P
Materials
Deliveries
Set-ups
Purchase orders
Revenue
7
8
2800000...
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