(a) Phoenix Corporation has 4 departments in its factory consisting of two service departments, Human Resources (HR) and Information System (IS), and two production departments, Machining and Assembly. Each of the production departments produce a single product. The current costs of each department are: $60,000 $2,400,000 $8,756,000 S12,542,000 HR IS Machining Assembly The distribution and consumption of departments' services is given as follows: Service provided to: Machining Assembly HR IS Services provided by: 40% 35% HR 25% 10% IS 30% 60% Required: Using the information provided: (i Determine the total cost of operations for each production department under the step- down method (3 marks) (ii) Discuss the differences between the direct method, the step-down method and the reciprocal method. (3 marks) (b) Harmon Ltd manufactures two types of calculators company is currently using a traditional costing system with machine hours as the cost driver The company is considering whether to use the activity-based costing (ABC) method to allocate overhead costs to products. Budgeted overhead costs of the upcoming accounting period follow Mathematical and Financial. The Budgeted level for activity driver Activity Total Activity driver budgeted activity cost $375,000 Machining Number of machine hours 75,000 machine hours Number of production runs Number of inspection hours $120,000 100 production runs Setup 1,500 inspection hours Inspection $105,000 Budgeted information about the two products is as follows: Mathematical Financial Annual production in units Direct material costs 50,000 $150,000 $50,000 100,000 $300,000 $100,000 Direct labour costs Direct labour hours 2,500 5,000 Machine hours 25,000 50,000 Number of production runs Inspection hours 50 50 1,000 500 Required: (i) Calculate the unit cost of each product if the conventional costing approach is used. (2 marks) (ii) Determine the unit cost of producing each product if activity based costing is used. (4 marks) (ii) Discuss two (2) advantages and two (2) disadvantages of activity based costing. (4 marks)
