Reference no: EM132560964

Button Pty Ltd manufactures two types of children's beds. The two products are Serta and Tempur. Button company, who currently use a conventional costing system, applies manufacturing overhead to all units at the rate of $90 per machine hour.

Production information is as follows:

                                             Serta                         Tempur

Direct material cost                     $40                      $65

Direct labour cost                        $35                     $35

Budget volume (units)               15,000                  30,000

The management accountant at Button company has determined that the firm's overhead can be classified into three main activities: manufacturing machine setups, machine processing and product shipping.

Information on the three cost drivers respectively is as follows:

                                        Serta                Tempur                  Total

Setups                                100                    60                 160

Machine hours                       25,000              45,000         70,000

Outgoing shipments                  250                     150               400

Button Ltd has total overhead of $6,300,000 and has been categorised as follows:

Manufacturing setups $1,344,000

Machine processing $3,556,000

Product shipping $1,400,000

Required:

Question 1. Calculate the unit manufacturing cost of the Serta and the Tempu beds using the company's current overhead costing procedures.

Question 2. Calculate the unit manufacturing cost of the Serta and the Tempu using activity-based costing. Show your calculations using a simple Excel spreadsheet.

Question 3. Assume that the current selling price of the Tempu bed is $280 and the marketing director has proposed to offer a $30 discount to increase sales. Is the discount advisable? Advise management. Show supporting calculations.