Reference no: EM132594597

The following are annual budgeted amounts for a manufacturer for the coming year (a normal year):

• Total budgeted annual overheads and direct labour time are RM8,000,000 and 8,000 hours respectively

The activity pools which give rise to this annual overhead cost consist of:

1. Procurement activity pool RM1,500,000 (budgeted 150 purchase orders per year)
2. Production setup pool RM500,000 (budgeted 500 setups per year)
3. Automation and Robotic pool 4,000,000 (budgeted 40,000 hours per year)
4. Marketing and Distribution activity pool RM2,000,000 (budgeted 20,000 salesman hours per year)

The company produces 10,000 units of Product A annually with the following unit costs: direct materials RM10, direct labour 2 hours. The rate for direct labour is RM 10 per hour.

Required:

Question a) Identify an appropriate activity level for each of the overhead cost pool. Why are there no facility level costs?

Question b) Calculate the unit cost of Product A using volume based costing with MH as the cost driver.

Question c) To produce and sell 10,000 units of Product A requires 10 purchase orders, 20 setups, 20,000 MH, 200 salesman hours. Calculate the unit cost of Product A using Activity-Based Costing (ABC).