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    Assignment Mutiara Limited

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    jagindas
    The document discusses two methods of calculating unit production costs - traditional costing using machine hours as the allocation base and activity-based costing - for two pearl products, Version A and Version S, produced by Mutiara Limited. [Activity-based costing is identified as the most appropriate method as it assigns overhead costs based on the actual activities consumed and results in a more accurate allocation of total production costs.]

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    Assignment Mutiara Limited

    Uploaded by

    jagindas
    44 views5 pages
    The document discusses two methods of calculating unit production costs - traditional costing using machine hours as the allocation base and activity-based costing - for two pearl products, Version A and Version S, produced by Mutiara Limited. [Activity-based costing is identified as the most appropriate method as it assigns overhead costs based on the actual activities consumed and results in a more accurate allocation of total production costs.]

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    costing

    Original Title

    ASSIGNMENT MUTIARA LIMITED

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    The document discusses two methods of calculating unit production costs - traditional costing using machine hours as the allocation base and activity-based costing - for two pearl products, Version A and Version S, produced by Mutiara Limited. [Activity-based costing is identified as the most appropriate method as it assigns overhead costs based on the actual activities consumed and results in a more accurate allocation of total production costs.]

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    44 views5 pages

    Assignment Mutiara Limited

    Uploaded by

    jagindas
    The document discusses two methods of calculating unit production costs - traditional costing using machine hours as the allocation base and activity-based costing - for two pearl products, Version A and Version S, produced by Mutiara Limited. [Activity-based costing is identified as the most appropriate method as it assigns overhead costs based on the actual activities consumed and results in a more accurate allocation of total production costs.]

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 5

    SUBMISSION OF ASSIGNMENT

    MUTIARA LIMITED

    Mutiara Limited specializes in manufacturing two pearl products; Pearl Version A and Pearl
    Version S, using broadly the same production methods and equipment for each. For many years
    1
    the company has used a simple plant-wide manufacturing support cost rate based on machine
    hours. The new plant accountant suggested that the company may be able to assign support costs
    to products more accurately by using an activity-based costing system that relies on a separate
    rate for each manufacturing activity that causes support costs. After studying the plant’s
    manufacturing activities and costs, the plant accountant has collected the following data for
    2014:

    Hours Per Unit Materials Per Production


    Labour Hours Machine Hours Unit (RM) (Units)
    Pearl Version A 5.0 1.5 85 1,100
    Pearl Version S 5.5 2 70 950

    Direct labour costs RM8.00 per hour. Further analysis shows that the total of production
    overheads, RM657, 000 can be divided as follows:

    Activity RM
    Costs relating to set-up 288,600
    Costs relating to machinery 138,700
    Costs relating to design changes 229,700
    Total production overhead 657,000

    The following activity volumes are associated with the product line for the period as a whole.

    A Number of Design
    Number of Setups Machine Hours
    Changes
    Pearl Version A 95 1,650 35
    Pearl Version S 75 1,900 30
    Total 170 3,550 65

    Required:

    (a) Assuming machine hours as the base for assigning manufacturing overhead cost to product;

    (i) Compute the predetermined overhead rate.


    (Round up your answers to zero (0) decimal point).
    [3 marks]
    2
    POHR = 657,000
    (1100 x 1.5)(950 x 2)

    = 657,000
    1650 + 1900

    = 657,000
    3550

    = 185

    (ii) By using the predetermined overhead rate computed in (a) (i), calculate the unit
    production cost for each type of pearl product.
    (Round up your answers to one (1) decimal point).
    [2 marks]

    Unit Production Cost

    PvA PvS
    Direct Material 85 70
    Direct Labour 8 x 5 = 40 8 x 5.5 = 44
    Overhead 185 x 1100 185 x 950
    (1100 + 950) (1100 + 950)

    = 203,500 = 175,750
    2050 2050

    = 99.26 = 85.73

    Total 224.26 199.73

    (b) Using activity based costing as the basis for assigning manufacturing overhead cost to
    product to compute the overhead rates,

    (i) Compute the activity rate for each of the three activity cost centres listed above.
    (Round up your answers to zero (0) decimal point).
    [3 marks]

    3
    Activity Overhead Cost Cost Driver AOR
    288,600
    170
    Setup 288,600 95 + 75 = 170
    = 1698

    138,700
    3550
    Machine 138,700 1,650 + 1,900 = 3550
    = 39

    229,700
    65
    Design 229,700 35 + 30 = 65
    = 3534

    Total 657,000

    (ii) Using the rates calculated in (b) (i), calculate the unit overhead cost for each product.
    (Round up your answers to two (2) decimal points).
    [4 marks]

    Activity PVA PVS


    Setup 95 x 1698 = 161,310 75 x 1698 = 127,350
    Machine 1650 x 39 = 64,350 1900 x 39 = 74,100
    Design 35 x 3534 = 123,690 30 x 3534 = 106,020
    Total 349,350 307,470

    Unit overhead cost for each product.

    PVA PVS
    349,350 307,470
    1100 950

    = 317.59 = 323.65

    (iii) Calculate the unit production cost for each product.


    (Round up your answers to two (2) decimal points).
    [2 marks]

    Activity PVA PVS


    4
    Direct Material 85 70
    Direct Labour 8 x 5 = 40 8 x 5.5 = 44
    Overhead 317.59 323.65
    Total 442.59 437.65

    (c) Based on the answers in part (a) and (b), which of the two unit production costs calculation is
    most appropriate. Justify your answer.
    [3 marks]

    Most appropriate of this unit production costs calculation is the Activity Based Costing (ABC).
    This is because of:

    i. The calculation covered all cost related to the production activity (Costs relating to set-
    up, costs relating to machinery and costs relating to design changes), include direct and
    indirect costs.

    ii. Produced good quality product.

    iii. Exact total expenditure.

    iv. The data should be easy to obtain and identifiable with the product.

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