ISMA Manufacturing Ptd Ltd produces COMP1 and sell it at the price of RM2, 500 per...
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ISMA Manufacturing Ptd Ltd produces COMP1 and sell it at the price of RM2, 500 per unit. Table 1.1 shows the data on COMP1. Item Direct material per unit Direct labour per unit Direct machining per unit For the current year, the company estimated the overhead cost that will be incurred is RM 2,440,000 and the total demand for COMP1 will be 5,000 units. a) ISMA Manufacturing is considering using Activity Based Costing (ABC) to estimate the unit cost of COMP1. The ABC system would have the following four activities or cost pools, shown in Table 1.2. Processing Material handling Machine set up Quality inspection b) Table 1.1 Standard Data for COMP1 Standard Quantity Activity/Cost Pool c) 1.5 kg 2 hours 1 hour Calculate the total unit cost of COMP1 using the absorption rate, on the basis of direct labour hour. (Other information that may be needed can be estimated from the given data) Machine hours Number of processes Order from customer Number of product d) e) Machine hours Number of processes Order from customer RM 75,000 RM 110,000 Number of product The expected activities for the COMP1 for each activity cost pool are shown in Table 1.3. Table 1.3 Expected activity 5,000 hours 5 processes per order 400 orders 5,000 units Cost RM300 per kg RM150 per hour RM200 per hour Table 1.2 Activity Cost Centres Activity measure/drivers Activity measure/drivers Estimated total overhead cost (RM) RM 2,250,000 RM 5,000 Expected activity Calculate the cost rate for each of the activity drivers? ISMA receives an order for 5 units of COMP1. Calculate the total cost of this order using Activity Based Costing and the absorption rate in a). Compare the answers in c) and explain why they differ. The company is concern about the high overhead costs. Analyse the results in questions a) to d) and give ONE [1] suggestion to ISMA Manufacturing Ptd. Ltd. on reducing overhead cost. As a manager of the company explain how this suggestion can be implemented. You may use your knowledge from other chapters in this course or other courses. ISMA Manufacturing Ptd Ltd produces COMP1 and sell it at the price of RM2, 500 per unit. Table 1.1 shows the data on COMP1. Item Direct material per unit Direct labour per unit Direct machining per unit For the current year, the company estimated the overhead cost that will be incurred is RM 2,440,000 and the total demand for COMP1 will be 5,000 units. a) ISMA Manufacturing is considering using Activity Based Costing (ABC) to estimate the unit cost of COMP1. The ABC system would have the following four activities or cost pools, shown in Table 1.2. Processing Material handling Machine set up Quality inspection b) Table 1.1 Standard Data for COMP1 Standard Quantity Activity/Cost Pool c) 1.5 kg 2 hours 1 hour Calculate the total unit cost of COMP1 using the absorption rate, on the basis of direct labour hour. (Other information that may be needed can be estimated from the given data) Machine hours Number of processes Order from customer Number of product d) e) Machine hours Number of processes Order from customer RM 75,000 RM 110,000 Number of product The expected activities for the COMP1 for each activity cost pool are shown in Table 1.3. Table 1.3 Expected activity 5,000 hours 5 processes per order 400 orders 5,000 units Cost RM300 per kg RM150 per hour RM200 per hour Table 1.2 Activity Cost Centres Activity measure/drivers Activity measure/drivers Estimated total overhead cost (RM) RM 2,250,000 RM 5,000 Expected activity Calculate the cost rate for each of the activity drivers? ISMA receives an order for 5 units of COMP1. Calculate the total cost of this order using Activity Based Costing and the absorption rate in a). Compare the answers in c) and explain why they differ. The company is concern about the high overhead costs. Analyse the results in questions a) to d) and give ONE [1] suggestion to ISMA Manufacturing Ptd. Ltd. on reducing overhead cost. As a manager of the company explain how this suggestion can be implemented. You may use your knowledge from other chapters in this course or other courses.
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a The total unit cost of COMP1 using the absorption rate is calculated as follows Direct material cost 15 kg x RM300 per kg RM450 Direct labour cost 2 ... View the full answer
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