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4) The president of Raymond's Manufacturing Company (RMC), Dr. Jerry Leung, believes that the traditional costing system does not reflect the totality of overhead costs
4) The president of Raymond's Manufacturing Company (RMC), Dr. Jerry Leung, believes that the traditional costing system does not reflect the totality of overhead costs in production. Even though RMC is a small manufacturing company (10 people) and it just started their business, Dr. Leung still wants to apply activity-based costing (ABC). The company has two products: FOAM-1 and FOAM-2. The annual production and sales of Product FOAM-1 is 8,000 units and of Product FOAM-2 is 6,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows: Activity Cost Pool Estimated Cost Activity 1 $20,000 Activity 2 37,000 Activity 3 91,200 (Disclose ALL supporting calculation steps) Expected Activity Product A Product B 100 400 800 200 1800 3,000 Total 500 1,000 3,8000 4a) Since Product FOAM-1 has higher sales, Dr. Jerry Leung wants you, the new graduate, to apply ABC and calculate the cost per unit of Product A. 4b) Even though RMC keeps thinking ABC is better when the president recognizes that there are some advantages in using ABC, briefly explains to Dr. Leung what are the potential concerns/drawbacks of ABC in RMC setting
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