1 A B C D E F G I (4+6= 10 Marks Q1 0 Ramanand Furniture (RF) produces two types of plastic trays, plain trays and designer trays. The cost structure of the firm consists of direct material, direct labour and indirect cost pool (manufacturing overheads). The firm is currently allocating manufacturing overheads on the basis of machine-hours (traditional costing system). Plain Trays manufactured by the firm was historically very popular in the market. However, the management noticed that the demand for the plain trays declining in the recent past. The customer feedback suggested that the price of plain MARKS Obtained trays sold by RF was marginally higher than the competitors. Therefore, the concerned management asked the accountant to put together the details of manufacturing cost to understand the cost structure. The details are 2 3 Units sold 4 Selling price per unit (Rs.) 5 Direct material cost per unit (Rs.) 6 Direct manufacturing labour per hour (Rs.) 7 Direct manufacturing labour-hours per unit 8 Materials moves 9 Number of inspections 10 Production runs 11 Machine hours 12 machine setups Plain Tray 9,600 Designer Trays 5,400 Q2 Q3 0 0 375 600 [valuator's comments: Q4 0 90 135 Q5 0 48 48 Q6 0 4.5 6.75 216 504 TOTAL (60) 0 750 450 120 255 16,500 135 13,500 465 Meanwhile, the management found out that the competitors using activity-based costing (ABC) techniques to allocate the overhead costs. Curious to know the effect of ABC system on costing, accountant was asked to prepare the total manufacturing cost under both existing and ABC systems. The accountant identifies six activities which are driving manufacturing overheads, namely, scheduling, material handling, preparing the machines, assembly, quality control, and marketing. RF collected the following data related to the manufacturing overheads 13 activities: 14 Activity 15 Preparing the machines 16 Assembly 17 Material handling 18 Quality control 19 Scheduling Activity Cost Activity cost driver 75,000.00 Machine setup 1,80,000.00 1,35,000.00 Machine hours Materials moves 24,000.00 2,85,000.00 Number of inspections Production runs 20 Marketing costs were estimated to be 3% of the sales revenue for each type of tray. 1. Calculate the cost of one unit of plain tray and designer tray each under the existing traditional costing system. 2. Calculate the cost of one unit of plain tray and designer tray each under an activity-based costing system. 21 22 Required 23 24 25 26 27 ANSWER & CALCULATIONS