The financial controller of Seats R Us has established indirect cost pools and cost drivers for the coming year as follows.

The sales team has received an order for 1500 seats and produced them. The order requires the following.

Required
(a) Briefly comment on the importance of a costing system to Seats R Us. 4 marks
(b) Draw a diagram showing the current costing system framework. 2 marks
(c) Calculate the indirect cost rate for each cost pool identified in (b). 5 marks
(d) Assign the indirect costs to the cost object identified in (b). 5 marks
(e) Suppose that a single indirect cost rate based on machine hours was used to allocate indirect costs.
Draw a diagram showing this costing system framework and contrast it with the one in (b) above.
Calculate the indirect cost rate. 3 marks
(f) What amount of indirect costs was applied to the cost object using the indirect cost rate based on machine hours? 2 marks
(g) Briefly comment on any differences in your answers to (d) and (f) above. 4 marks

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Indirect cost pools Machine processing Power Materials handling Quality control Other indirect costs Budgeted cost $120 000 350 000 85000 145 500 184 500 $885 000 Cost driver Number of set-ups Machine hours Materials weight Number of units Direct labour hours Total level of cost driver 40 22 500 35 000 kg 82 000 units 14560 hours