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10 Puncak Bhd manufactures two models of shoes called CUTE and SWEET. The SWEET model has been in the market for many years. Due to the demands in the current fashion trend, the company introduced a new model called CUTE. Since the introduction of the CUTE model, the company's profits however, have been steadily declining in spite of increasing sales of CUTE. The management of Puncak Bhd is worried and asks the cost accountant to do an analysis on this problem. The cost accountant has identified that currently the company is using direct labour hours to absorb manufacturing overheads. He prefers to adopt the activity-based costing (ABC) approach. The following data relate to the two models for the current period: CUTE SWEET Volume (units) 15,000 120,000 Selling price per unit (RM) 350 175 Direct materials cost per unit (RM) 154 112 Direct labour cost per unit (RM) 16 Direct labour hours per unit (hours) 1.6 0.8 Total manufacturing overheads for the period are RM6,000,000. This total can be broken down as follows: Manufacturing overheads RM Purchasing 252,000 Rework 648,000 Product testing 1,350,000 Machine related costs 3,750,000 22 Management Accounting The cost accountant has also gathered the following additional information to implement ABC system. Expected activity Total SWEET Activity measures CUTE 15,000 9,000 6,000 Number of tests 1,200 800 400 Number of purchase orders 900 400 500 Number of rework orders 30,000 50,000 20,000 Machine hours Required: a. Using direct labour hours as the basis of absorption of overheads, compute the product cost per unit for each model. b. Sompute the product cost per unit for each model if ABC is introduced.

10 Puncak Bhd manufactures two models of shoes called CUTE and SWEET. The SWEET model has been in the market for many years. Due to the demands in the current fashion trend, the company introduced a new model called CUTE. Since the introduction of the CUTE model, the company's profits however, have been steadily declining in spite of increasing sales of CUTE. The management of Puncak Bhd is worried and asks the cost accountant to do an analysis on this problem. The cost accountant has identified that currently the company is using direct labour hours to absorb manufacturing overheads. He prefers to adopt the activity-based costing (ABC) approach. The following data relate to the two models for the current period: CUTE SWEET Volume (units) 15,000 120,000 Selling price per unit (RM) 350 175 Direct materials cost per unit (RM) 154 112 Direct labour cost per unit (RM) 16 Direct labour hours per unit (hours) 1.6 0.8 Total manufacturing overheads for the period are RM6,000,000. This total can be broken down as follows: Manufacturing overheads RM Purchasing 252,000 Rework 648,000 Product testing 1,350,000 Machine related costs 3,750,000 22 Management Accounting The cost accountant has also gathered the following additional information to implement ABC system. Expected activity Total SWEET Activity measures CUTE 15,000 9,000 6,000 Number of tests 1,200 800 400 Number of purchase orders 900 400 500 Number of rework orders 30,000 50,000 20,000 Machine hours Required: a. Using direct labour hours as the basis of absorption of overheads, compute the product cost per unit for each model. b. Sompute the product cost per unit for each model if ABC is introduced.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter13: The Balanced Scorecard: Strategic-based Control
Section: Chapter Questions
Problem 13E: Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic...
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10 Puncak Bhd manufactures two models of shoes called CUTE and SWEET. The SWEET model has been in the market for many years. Due to the demands in the current fashion trend, the company introduced a new model called CUTE. Since the introduction of the CUTE model, the company's profits however, have been steadily declining in spite of increasing sales of CUTE. The management of Puncak Bhd is worried and asks the cost accountant to do an analysis on this problem. The cost accountant has identified that currently the company is using direct labour hours to absorb manufacturing overheads. He prefers to adopt the activity-based costing (ABC) approach. The following data relate to the two models for the current period: CUTE SWEET Volume (units) 15,000 120,000 Selling price per unit (RM) 350 175 Direct materials cost per unit (RM) 154 112 Direct labour cost per unit (RM) 16 8 Direct labour hours per unit (hours) 1.6 0.8 Total manufacturing overheads for the period are RM6,000,000. This total can be broken down as follows: Manufacturing overheads RM Purchasing 252,000 Rework 648,000 Product testing 1,350,000 Machine related costs 3,750,000 122 Management Accounting ABC system. Expected activity Total SWEET Activity measures CUTE 9,000 15,000 6,000 Number of tests 800 1,200 400 Number of purchase orders 400 900 500 Number of rework orders 30,000 50,000 Machine hours 20,000 Required: a. Using direct labour hours as the basis of absorption of overheads, compute the product cost per unit for each model. b. Compute the product cost per unit for each model if ABC is introduced.
Transcribed Image Text:10 Puncak Bhd manufactures two models of shoes called CUTE and SWEET. The SWEET model has been in the market for many years. Due to the demands in the current fashion trend, the company introduced a new model called CUTE. Since the introduction of the CUTE model, the company's profits however, have been steadily declining in spite of increasing sales of CUTE. The management of Puncak Bhd is worried and asks the cost accountant to do an analysis on this problem. The cost accountant has identified that currently the company is using direct labour hours to absorb manufacturing overheads. He prefers to adopt the activity-based costing (ABC) approach. The following data relate to the two models for the current period: CUTE SWEET Volume (units) 15,000 120,000 Selling price per unit (RM) 350 175 Direct materials cost per unit (RM) 154 112 Direct labour cost per unit (RM) 16 8 Direct labour hours per unit (hours) 1.6 0.8 Total manufacturing overheads for the period are RM6,000,000. This total can be broken down as follows: Manufacturing overheads RM Purchasing 252,000 Rework 648,000 Product testing 1,350,000 Machine related costs 3,750,000 122 Management Accounting ABC system. Expected activity Total SWEET Activity measures CUTE 9,000 15,000 6,000 Number of tests 800 1,200 400 Number of purchase orders 400 900 500 Number of rework orders 30,000 50,000 Machine hours 20,000 Required: a. Using direct labour hours as the basis of absorption of overheads, compute the product cost per unit for each model. b. Compute the product cost per unit for each model if ABC is introduced.
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