A B C

Selling price /unit $75.90 $67.10 $119.90

Direct material cost /unit $20 $12 $25

Direct labour hour /unit 0.5 hrs 1.5 hrs 1 hr

Machine hour /unit 1.5 hrs 1 hr 3 hrs

• Direct labour cost for the whole workforce --> RM14 / hr.
• Predetermined overhead rate --> RM28 per machine hour.
• Production overheads are absorbed on a machine hour basis.

The total of production overheads can be divided as follows:

Activity Cost Pool

Set-ups cost 35%

Machinery 20%

Material handling 15%

Inspection 30%

Total overhead 100%

The study by the taskforce revealed the following information pertaining to cost drivers and marketing cost:

a) The machine setup overhead was generated by charging the job to be run and should be related to the number of set-ups.

b) The overhead costs for machinery have nothing to do with direct labour-hours. These costs are more likely to vary with the number of machine-hours.

c) The people in the material handling department move each of component for a production run. Thus, the appropriate cost driver should be number of movement of materials.

d) The inspection overhead costs arise from inspecting the finished goods. The higher the number of finished units, the higher the inspection overhead costs. The appropriate cost driver should be number of inspections.

Cost driver volume for each product:

Activity cost driver A B C

No. of set-ups 75 115 480

No. of movement of materials 12 21 87

No. of inspections 150 180 670

Using traditional absorption costing system, calculate & compute:

• Total manufacturing overhead costs
• Manufacturing overhead cost for each product
• Product cost per unit of each product
• Profit per unit of each product

Using activity-based costing system, calculate & compute:

• Manufacturing overhead costs for each activity
• Manufacturing overhead cost allocation rate for each activity
• Manufacturing overhead cost per unit allocated to each product
• Product cost per unit of each product
• Profit per unit of each product