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Question 1 Speed Packaging and Delivery (SPD) is a local logistic delivery company providing packaging, labelling and delivery services for domestic market. The company started the business 3 years ago with a rented small factory in Gombak. The business expanded steadily and recently the Company had moved to it's own factory in Shah Alam. ERP system Early of the year, SPD introduced an ERP system at its new packaging factory and warehouse to cope with the expected rapid growth in the packaging and logistic industry. This was to help in managing the inventory more effectively and to speed up the processes for receiving goods from customers, packaged and the delivery goods to the buyers. Budgeting system Currently, the company's uses the traditional absorption system to absorb overhead costs to the products and the management is considering to change to the activity-based costing method to enhance the company's performance and to remain competitive in the industry. Packaging and warehouse activity The three key activities which drive costs in the packaging warehouse are receipts of items into the goods inwards section, packaging, labelling and despatch of goods from the goods outwards section. A receipt into good inwards involves accepting a delivery of goods from a customer, checking those goods and arrange for packaging and labelling and putting away in the warehouse once the packaging and labelling process is completed. Receipts from customers contain variable units of different items. Despatch of goods from the goods outwards are to the end users. Cost driver rates for these three activities will be used to determined the overhead cost to be charged to the products The packaging factory and ware house's actual running cost for the year ended 2021 are as follows: Inwards Packaging and Outwards Total section labelling section (RM'000) (RM'000) section (RM'000) (RM'000) Packaging and warehouse manager's 25 35 20 80 salary ERP running cost 20 30 25 75 Factory and warehouse staff wages 200 Packaging and labelling cost 180 180 Electricity and water 5 30 5 40 Additional information: (1) There were 10 full-time packaging and warehouse staff employed throughout the year who were each paid an annual salary of RM20,000, 30% of the staff work in the goods inwards, 40% in the packaging and labelling section and 30% in the goods outwards section. The company operates for 8 hours per day and for 350 days per annum. This question paper consists of 2 questions on 5 printed pages. BBMC2113 PERFORMANCE MANAGEMENT Question 1 (Continued) (2) The packaging and labelling cost are mainly consists the following: - packaging and labelling material cost RM140,000 and - packaging and labelling machine set up and maintenance cost of RM40,000. (3) The cost of electricity and water relates to all sections of the factory cum warehouse, and it is based on the actual consumption of the utilities. (4) The annual number of receipts into goods inwards is 12,000 times, containing a total of 600,000 items. (5) The annual number of packaging and labelling by the packaging and labelling section is 4,000 times. (6) The annual number of delivery/despatch to the stores is 8,000 times, containing a total of 660,000 items Required: (a) Calculate the single factory cum warehouse overhead absorption rate using traditional overhead absorption method based on warehouse staff hours. (6 marks) (b) Based on the information above, explain what is a cost driver and identify the possible cost driver for the goods inwards, packaging and good outwards sections. Justify your answer. (9 marks) (c) Calculate the overhead absorption rate for all sections, assuming the number of receipts, number of packaging and number of delivery/despatch is the cost driver for goods inwards, packaging and good outwards section respectively. (12 marks) ( (d) Based on the above scenario, briefly explain how the adoption of activity based costing method will enhance the company's competitiveness in the market. (3 marks) [Total: 30 marks