Jola Publishing Co publishes two forms of book.
The company publishes a children’s book (CB), which is sold in large quantities to government controlled schools. The book is produced in four large production runs. The second book is a comprehensive technical journal (TJ). It is produced in monthly production runs, 12 times a year.
The directors are concerned about the performance of the two books and are wondering what the impact would be of a switch to an activity based costing (ABC) approach to accounting for overheads. They currently use absorption costing, based on number of books produced for all overhead calculations. Overheads amount to
Activity driver
Production costs
2,160,000
Machine hours
Quality control
668,000
Number of inspections
Production set up costs
52,000
Number of set ups
2,880,000
What is the total activity based allocation of production overheads for production of the CB？
A、1,200,000 C、1,800,000