Melaleuca Manufacturing Ltd produces timber felling machines for the forestry industry around the world. Its two machines
Question:
Melaleuca Manufacturing Ltd produces timber felling machines for the forestry industry around the world. Its two machines are the Tree Toppler, which cuts down trees and clears undergrowth, and the Melaleuca Muncher that pulps the timber into woodchips.
The costs, volumes and cost drivers for the year ended 30 June 2016 are as follows:
Tree Toppler | Melaleuca Muncher | Total | |||||||
Sales and production (units) Direct materials cost Direct labour hours Machine hours Direct labour cost Number of production runs Number of deliveries Number of receipts of materials Number of production orders | 320 $86000 48.75 66.75 $1755 14 320 19200 160 | 280 $72000 32 54 $1152 16 280 13440 112 | 600 $47680000 24560 36480 $875520 30 600 32640 272 | ||||||
Overhead costs Set-up costs Machine maintenance and depreciation Receiving and warehousing Preparing for shipment and freight Engineering for production orders Total | $ 720000 2918400 1958400 5160000 1523200 $12280000 | ||||||||
Required
A. Calculate the unit cost of each machine if all overhead costs are allocated on the basis of direct labour hours.
B. Calculate the unit cost of each machine using activity based costing.
C. Which machine is likely to be overpriced using the single overhead allocation method of direct labour hours and which machine is likely to be underpriced?
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett