LALA Ltd manufactures two types of shoes (Ballet and Bella) and it is located in Park...
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LALA Ltd manufactures two types of shoes (Ballet and Bella) and it is located in Park Royal, London. Both types of shoes go through three distinct stages of production processes, namely cutting, sewing and finishing, Finance team has allocated and apportioned the annual budgeted production overheads as follows: Cost centre Cutting Sewing Finishing Annual budgeted production overheads EX Y Z The cutting process is mainly mechanised, the sewing process is mainly manual labour and the finishing process is unit-based. It is estimated that the total production for the year is 25,000 units with 40,000 machine hours and 20,000 labour hours available for the year. "Ballet shoes" is one type of shoes produced by the Company. One unit of "Ballet shoes" requires the following prime cost: Direct materials Direct labour: Cutting-6 minutes @2 per hour Sewing-30 minutes @ 10 per hour Finishing-3 minutes @4 per hour One unit of "Ballet shoes" requires 1.6 machine hours. 12 0.20 5 0.20 Assuming the role of company's management accountant, during the board meeting of last week, you proposed the implementation of the activity-based costing ("ABC") approach for the next budgetary period. If the company adopts the ABC approach, the details relating to the planned production overheads are as follows: Activity Materials ordering Materials issuing Machining Finishing Student number 7th digit 0 or 1 or 201 3 or 4 or 5 6 or 7 or 8 or 9 Required: - Cost Driver Number of orders Number of issues Machine hours Labour hours . Number of Activities Ballet Total 100 400 40,000 20,000 60 150 20,000 10,000 X Y Z 100,000 100,000 100,000 80,000 130,000 90,000 110,000 110,000 80,000 Bella 40 250 20,000 10,000 Total Total Production Overheads In facilitating the directors' decision in the implementation of the ABC approach for the company's next budgetary period, as the management accountant, you are required to write a report to board of directors explaining the main features and advantages of ABC approach over traditional costing approach. When writing your report, you should consider the following: Discuss key features (with appropriate example) of ABC method Discuss key advantages of ABC method as compared to traditional costing 20,000 30,000 130,000 120,000 300,000 approach. Include calculation of full cost per unit of "Ballet shoes" using traditional costing approach and activity-based costing ("ABC") approach respectively. Compare the results, and discuss the possible reason/reasons for that difference, and what would be negative outcome/outcomes if the company choose to continue with traditional costing approach. LALA Ltd manufactures two types of shoes (Ballet and Bella) and it is located in Park Royal, London. Both types of shoes go through three distinct stages of production processes, namely cutting, sewing and finishing, Finance team has allocated and apportioned the annual budgeted production overheads as follows: Cost centre Cutting Sewing Finishing Annual budgeted production overheads EX Y Z The cutting process is mainly mechanised, the sewing process is mainly manual labour and the finishing process is unit-based. It is estimated that the total production for the year is 25,000 units with 40,000 machine hours and 20,000 labour hours available for the year. "Ballet shoes" is one type of shoes produced by the Company. One unit of "Ballet shoes" requires the following prime cost: Direct materials Direct labour: Cutting-6 minutes @2 per hour Sewing-30 minutes @ 10 per hour Finishing-3 minutes @4 per hour One unit of "Ballet shoes" requires 1.6 machine hours. 12 0.20 5 0.20 Assuming the role of company's management accountant, during the board meeting of last week, you proposed the implementation of the activity-based costing ("ABC") approach for the next budgetary period. If the company adopts the ABC approach, the details relating to the planned production overheads are as follows: Activity Materials ordering Materials issuing Machining Finishing Student number 7th digit 0 or 1 or 201 3 or 4 or 5 6 or 7 or 8 or 9 Required: - Cost Driver Number of orders Number of issues Machine hours Labour hours . Number of Activities Ballet Total 100 400 40,000 20,000 60 150 20,000 10,000 X Y Z 100,000 100,000 100,000 80,000 130,000 90,000 110,000 110,000 80,000 Bella 40 250 20,000 10,000 Total Total Production Overheads In facilitating the directors' decision in the implementation of the ABC approach for the company's next budgetary period, as the management accountant, you are required to write a report to board of directors explaining the main features and advantages of ABC approach over traditional costing approach. When writing your report, you should consider the following: Discuss key features (with appropriate example) of ABC method Discuss key advantages of ABC method as compared to traditional costing 20,000 30,000 130,000 120,000 300,000 approach. Include calculation of full cost per unit of "Ballet shoes" using traditional costing approach and activity-based costing ("ABC") approach respectively. Compare the results, and discuss the possible reason/reasons for that difference, and what would be negative outcome/outcomes if the company choose to continue with traditional costing approach.
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Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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