a) Determine the product costs per unit for each of the electric car models using: (i) traditional
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(i) traditional costing
(ii) activity-based costing
b) What is the effect of the costing systems in a) on the profit margin for each of the car model for December 2021? Show ALL calculations where necessary.
c) Was Liza's concern on the accuracy of the traditional costing system in allocating the overhead costs justified? Why or why not?
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Pinky Sdn. Bhd. (PSB) manufactures four models of budget electric cars: Aria, Semplice, Adagio and Maestoso. The output and cost data for December 2021 are as follows: Aria Semplice Adagio Maestoso Output Units 50 20 50 20 Production Runs 4 8 N∞ 2 10 Material Costs RM300,000 RM300,000 RM650,000 RM650,000 Direct Labour Hours (DLH) Activity Cost Pools Short-run variable costs 150 60 250 100 The production of the electric cars would require highly-skilled labours for assembly. Direct labour cost per hour is RM15. For December 2021, the overhead costs have been applied on the traditional costing basis of direct labour hours (DLH). In line with the year-end sales bonanza season, both the lower-range models, Aria and Semplice, were sold at RM30,000 per unit. For the higher range models, Adagio and Maestoso, both cars were sold at RM80,000 per unit. All cars produced in December were sold. Set-up costs Production and scheduling costs Material handling costs Machine Hours (MH) 50 200 350 400 The cost accountant, Liza, believes that the current use of traditional volume-based costing system in assigning the overhead costs would result in inaccurate cost information. Liza initiated to determine the cost pools responsible for the overhead costs for management consideration. The estimated overhead costs for the December 2021 were as follows: Cost Drivers machine hours production runs machine hours labour hours RM 30,800 109,200 91,000 77,000 Pinky Sdn. Bhd. (PSB) manufactures four models of budget electric cars: Aria, Semplice, Adagio and Maestoso. The output and cost data for December 2021 are as follows: Aria Semplice Adagio Maestoso Output Units 50 20 50 20 Production Runs 4 8 N∞ 2 10 Material Costs RM300,000 RM300,000 RM650,000 RM650,000 Direct Labour Hours (DLH) Activity Cost Pools Short-run variable costs 150 60 250 100 The production of the electric cars would require highly-skilled labours for assembly. Direct labour cost per hour is RM15. For December 2021, the overhead costs have been applied on the traditional costing basis of direct labour hours (DLH). In line with the year-end sales bonanza season, both the lower-range models, Aria and Semplice, were sold at RM30,000 per unit. For the higher range models, Adagio and Maestoso, both cars were sold at RM80,000 per unit. All cars produced in December were sold. Set-up costs Production and scheduling costs Material handling costs Machine Hours (MH) 50 200 350 400 The cost accountant, Liza, believes that the current use of traditional volume-based costing system in assigning the overhead costs would result in inaccurate cost information. Liza initiated to determine the cost pools responsible for the overhead costs for management consideration. The estimated overhead costs for the December 2021 were as follows: Cost Drivers machine hours production runs machine hours labour hours RM 30,800 109,200 91,000 77,000
Expert Answer:
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a Product cost per unit under Traditional Costing Aria 7695 Semplice 16695 Adagio 15825 Maestoso 35325 ABC Costing Aria 694330 Semplice 1849550 Adagio 1479710 Maestoso 3797350 b Effect on profit margi... View the full answer
Related Book For
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn
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