Slugs Ltd makes two products: Winny (W) and Poony (P). The following information is available for the two products Winny Poony Budgeted Volume (units) 1000 2000 Material per unit (£) 10 20 Labour per unit (£) 5 20 Fixed costs related to material handling was £100,000 and this was absorbed using the volume of material purchased as a cost driver. Generally, fixed costs were £180,000 and this was absorbed using direct labor hours. Using ABC, what is the total fixed cost (to the nearest £) allocated to Poony?

Under the ABC method of fixed cost allocation the fixed cost are allocated on the specific allocation base as given in the question itself.

For Material handling fixed cost , allocation is based on Material purchased, and General Fixed cost are allocated used on direct labour hours.

The total Material purchased and Direct labor hours will be as follows:

The Allocation for the Fixed cost will be as follows:

For Poony :

Fixed cost related to material Handling = Fixed cost related to material handling * ( Material purchased for poony / Total Material purchased )

Fixed cost related to material Handling = £100,000 * ( 40,000 / 50,000)

Fixed cost related to material handling = £ 80,000

Now,

General Fixed cost = General Fixed cost * ( Direct labour hours for poony / Total Direct labour hours )

General fixed cost = £180,000 * ( 40,000 / 45,000 )

General Fixed cost = £ 160,000

Thus,

The Total Fixed cost allocated to Poony = Fixed cost related to material handling + General Fixed cost

Total Fixed cost allocated to Poony = £ 80,000 + £ 160,000

Total Fixed cost allocated to Poony =  £ 240,000