QUESTION 1:

MINI CASE STUDY

(12 + 8 = 20 MARKS)

Oriental Motor Assembly Pte Ltd assembles three types of motorcycle at the same factory in

Singapore: the 100cc Discover; the 250cc Pulsar and the 1000cc Punch.

It sells the

motorcycles throughout the world.

In response to market pressures Oriental Motors has

invested heavily in new manufacturing technology in recent years and, as a result, has

significantly reduced the size of its workforce.

Historically, the company has allocated all overhead costs using total direct labour hours, but

is now considering introducing activity-based costing (ABC).

Oriental Motors accountant has

produced the following analysis.

Annual Output

(Units)

Annual Direct

labour hours

Selling price ($

per unit)

Raw material

cost ($ per unit)

Discover

2000

200,000

4,000

400

Pulsar

1600

220,000

6,000

600

Punch

400

80,000

8,000

900

The three cost drivers that generate overheads are:

Deliveries to retailers: the number of deliveries of motorcycles to retail showrooms

Set-ups: the number of times the assembly line process is re-set to accommodate a

production run of a different type of motorcycle.

Purchase orders: the number of purchase orders.

The annual cost driver volumes relating to each activity and for each type of motorcycle are

as follows:

Number of deliveries to

retailers

Number of set-ups

Number of

purchase orders

Discover

100

35

400

Pulsar

80

40

300

Punch

70

25

100

The annual overhead costs relating to these activities are as follows:

Particulars

Amount ($)

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