Answer Exercise ABC Question 1 Atlantic Company a) POHR: = RM900,000 (25,000 + 5,000) = RM30 per DLH b) Unit cost

st (Traditional): Products Model A Model B 40 30 12 12 30 30 RM82 RM72

Direct materials Direct labor Overhead : (RM30 x 1 hr) Total c) ABC overhead rates

Activity Cost Pools setting-up machines machining inspecting d) Overhead rates

Estimated Estimated use of cost Overhead drivers per activity RM300,000 1,500 setups 500,000 50,000 machine hours 100,000

ABC overhead rates RM200 per setup RM10 per machine hour 2,000 inspections RM50 per inspection

Model A Cost assigned setting-up machines: (RM200 @ 500; @1,000) Machining: (RM10 @ 30,000; @ 20,000) Inspecting: (RM50 @ 500; @ 1,500 Total Units produced OH cost per unit RM100,000

Model B Cost assigned RM200,000

300,000 200,000 25,000 RM425,000 25,000 RM17 75,000 RM475,000 5,000 RM95

e)

Unit cost under ABC & comparison wt traditional costing: Traditional 40 12 30 RM82 Model A ABC 40 12 17 RM69 Traditional 30 12 30 RM72 Model B ABC 30 12 95 RM137

Direct materials Direct labor Overhead Total product cost per unit

Question 2 Elektrik Antius a) Unit cost traditional POHR: = RM1,150,000 40,000 = RM28.75 per DLH Products PL ST RM120.00 RM140.00 20.00 45.00 57.50 RM197.50 86.25 RM271.25

Direct materials Direct labor (RM100,000/ 5,000) (RM450,000/10,000) Overhead (RM28.75 x 10,000) /5,000 ( RM28.75 x 30,000) / 10,000 Total b) Unit cost ABC Estimated Overhead Estimated use of cost drivers per activity RM300,000 6,000 240,000 2,000 330,000 300 280,000 1,400

Activity Cost Pools Machine setups Purchase ordering Product design Packing and shipping

ABC overhead rates RM50 per setup RM120 per purchase order RM1,100 per product design RM200 per shipment ST RM140.00 45.00

Product cost: Direct materials Direct labor Overhead: Machine setups: (RM50 * 4,000) / 5,000 (RM50 * 2,000) / 10,000 Purchase ordering: (RM120 * 1,200) / 5,000 (RM120 * 800) / 10,000 Product design: (RM1,100 * 200) / 5,000 (RM1,100 * 100) / 10,000 Packing and shipping: (RM200 * 800) / 5,000 (RM200 * 600) / 10,000 Overhead per unit Total unit cost

PL RM120.00 20.00 40.00

10.00 28.80 9.60 44.00 11.00 32.00 144.80 RM284.80 12.00 42.60 RM227.60

c) Product PL ST Traditional ABC RM197.50 * 1.25 = RM246.75 RM284.80 * 1.25 = RM356.00 RM271.50 * 1.25 = RM339.06 RM237.60 * 1.25 = RM284.50

ST is over-costed and overpriced. PL is under-costed and underpriced under traditional costing given the allocation basis used were not appropriate as they are basically unit related measures. d) ABC is more appropriate given the allocation basis involved unit and non-unit related measures. ST is high volume product hence, ST received more costs given traditional costing uses only volume related measures and product PL is a low volume product, hence it is undercosted given low volume produced. With ABC system, overhead costs will be allocated accordingly to the activity usage, hence there will be no product over-costed and under-costed under this method.