Answer to question A1:

No. Cost Item Answer

1 Customer service
Labor time to repair products under warranty

2 TV commercial spots Marketing

3 Labor costs of filling customer orders Distribution
4 Testing of competitor's product R&D
5 Direct manufacturing labor costs Production
6 Development of order tracking system for the Internet Distribution

7 Printing cost of new product brochures Marketing

8 Hours spent designing childproof bottles Design
9 Training costs for representatives to staff the R&D or customer service
customer call center

10 Installation of robotics equipment in manufacturing Production

plant
Answer to question B2:

A. Total cost of product AS1 if traditional cost accounting method is used:

Overhead rate = Total overheads/labor hours

= $90,000/100,000
= $9

Total cost = Direct materials + Direct labor + Manufacturing overhead

= $20,000 + $15,000 + ($1000 * $9)
= $44,000

B. Total cost of product AS1 if activity-based costing method is used:

Activity Expected Cost driver Activity level Rate

MOH
Maintenance $300,000 Machine 40,000 $7.50
hours
Materials $150,000 Material 6,000 $25
handling moves
Setups $200,000 Setups 10,000 $20
Inspection $250,000 Quality 15,625 $16
inspections

Total cost = Direct materials + Direct labor + Machine hours cost + Material moves
cost + Setups cost + Quality Inspection cost
= $20,000 + $15,000 + (750 * $7.50) + (20 * $25) + (5 * $20) + (25 * $16)
= $ 41,625

C. Activity based costing is better than the traditional costing method, as the
calculations have shown that if the traditional method is used Al Yaqeen will bear
($44,000) as a total cost. On the other hand if ABC method is used the total cost will
be ($41,625), and that will allow the company to save ($2,375).
Answer to question B3:

Selling , Admin,
DM, DL, or
Cost (1) F or V (2) MOH
1 Property Taxes, factory F MOH
Boxes used for packaging detergent produced by the MOH
2 V
company
3 Salespersons' commissions V Selling
4 Supervisor's salary, factory F MOH
5 Depreciation, executive car F Admin
6 Wages of workers assembling computers V MOH
7 Insurance, finished goods warehouses F Selling
8 Lubricants for machines, factory V MOH
9 Advertising costs F Selling
10 Cleaning supplies, factory V Admin
11 Shipping costs on merchandise sold V Selling
12 security guard's wages, factory F MOH
13 Thread in a garment factory V MOH
14 Billing costs V Selling
15 Executive life insurance F Admin
16 Wages of receptionist, executive offices F Admin
17 Indirect materials V MOH
18 Rent on a factory building F MOH
19 Wages of laborers assembling a product V MOH
20 Janitorial salaries, factory F Admin
21 Sugar used in soft-drink production V MOH
22 Depreciation, office equipment F Admin