Problem$-4$

Over the last decade, XYZ Ltd$.$ has increasingly automated its manufacturing processes,

replacing manual labour with advanced robotic systems. XYZ Ltd$.$ currently produces over $150$

different products, each varying in design complexity. Traditionally, the company has used a

single plant$-$wide overhead absorption rate based on machine hours to allocate overhead costs.

In the second quarter of the year, XYZ Ltd$.\text{'}$s manufacturing overhead costs were as follows:

Overhead Costs

Machine operation expenses

Amount

Machine maintenance expenses $$40,000$

$$150,000$

Salaries for technicians

Wages paid to warehouse staff

$$90,000$

$$45,000$

Wages paid to logistics staff

Total

$$55,000$

$$380,000$

During this quarter, the company reviewed its costing system and decided that absorbing

overhead costs based on machine hours was no longer appropriate. The company decided to

switch to an Activity$-$Based Costing $($ABC$)$ system and identified the following key activities:

$($i$)$ Receiving raw materials from suppliers

$($ii$)$ Setting up machines for production batches

$($iii$)$ Conducting quality checks

$($iv$)$ Shipping finished products to customers

The overhead costs were apportioned as follows:

$$ Machine operation and maintenance expenses: $10\%$ to receiving, $65\%$ to

manufacturing, $25\%$ to shipping.

$$ Technician salaries: $25\%$ to maintenance, $50\%$ to setup, $25\%$ to quality checks.

During the quarter:

$$ A total of $500$ machine hours were used $($at a rate of $$15$ per hour$).$

$1,200$ raw material consignments were received.

$1,100$ production batches were set up$.$

$900$ quality checks were conducted.

$550$ orders were shipped to customers.

Production during the quarter included products X$,$ Y$,$ and Z$.$ The following information is

available:

Product

Product X Product Y Product Z

Machine hours used

$30$

$350$

Direct material

$$1,800$

$$4,500$

$120$

Consignments received $35$

$$2,500$

$45$

Production batches

$50$

$20$

$30$

Quality checks

$25$

$15$

$20$

Orders shipped

$25$

$25$

$75$

Quantity produced

$50$

$750$

Required:

$15,000$

$4,500$

a$)$ Calculate the unit cost of products X$,$ Y$,$ and Z using XYZ Ltd$.\text{'}$s existing cost accounting

system based on machine hours.

b$)$ Calculate the unit cost of products X$,$ Y$,$ and Z using the ABC system.