Persiaran Sdn. Bhd. makes a product in two qualities, called 'Basic' and 'Super'. The business is able to sell these products at a price that gives a standard profit mark-up of 25 per cent of full cost. Full cost for one unit is calculated by charging overheads to each type of product on the basis of direct labor hours. The costs are as follows:

Based on experience over recent years, in the forthcoming year the business expects to make and sell 40,000 Basics and 10,000 Supers.
Recently, the management has undertaken an exercise to identify cost drivers based on various activities. The finding has revealed that following analysis of the annual overhead:

Required:
a). Determine the full cost and selling price of each of the two products based on the present costing system.
b). Determine the full cost and selling price of each product on an activity-based costing basis, taking accounting of the management's recent investigation.
c). What conclusions can you draw? What advice would you offer the management of the business?

Transcribed Image Text:

Basic (S) 40 15 Super (S) 60 20 Direct labour (S 10 per hour) Direct material ctivity (and cost driver) ost (S) 000 ual number of activities otal asic uper 80 100 umber of machine set-ups umber of quality-control inspections umber of sales orders processed 20 500 500 350.000 1,500 500 150,000 240 General production (machine hours) 260 500,000 otal