Answer:
The full production costs are:
ABC = $22,900,000
PQR = $1,700,000
Explanation:
Traditional costing method is a costing method that allocates or applies overhead based on a particular metric determined by a company. It therefore add both direct cost of production and production overheads absorbed to obtain the full cost of production.
Since production overheads in this question is absorbed on demand sales basis, the full production costs for ABC and PQR can be computed as follows:
ANZ Corporation
Computation of Full Production Costs
Particulars ABC PQR
Sales demand 30,000 15,000
Cost $ $
Direct cost:
Direct materials cost (w.1) 1,350,000 900,000
Direct labor cost (w.2) 900,000 600,000
Total direct cost 22,500,000 1,500,000
Indirect cost:
Production overhead (w.3) 400,000 200,000
Full production cost 22,900,000 1,700,000
Workings:
w.1: Computation of direct material cost
Direct material cost = Direct material cost per unit * Sales demand
Therefore;
ABC Direct material cost = $45 * 30,000 = $1,350,000
PQR Direct material cost = $60 * 15,000 = $900,000
w.2: Computation of direct labor cost
Direct labor cost = Direct labor cost per unit * Sales demand
Therefore;
ABC Direct material cost = $30 * 30,000 = $900,000
PQR Direct material cost = $40 * 15,000 = $600,000
w.3: Allocation of production overhead
Production overheads allocated to a model = Production overheads * (Model's Sales Demand / Total Sales demand)
Total Sales demand = 30,000 + 15,000 = 45,000
Therefore, we have:
Production overhead allocated to ABC = $600,000 * (30,000 / 45,000) = $400,000
Production overhead allocated to PQR = $600,000 * (15,000 / 45,000) = $200,000