A?Blue Moon Sdn Bhd has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). The company has two products, RED and BLUE, of which details of the costs and volume is provided below:

	Product RED	Product BLUE
Direct material cost per unit (RM)	34.90	63.70
Direct labour cost per unit (RM)	20.80	62.40
Direct labour hours (DLH) per unit	0.80 hour	2.40 hours
Annual production	35,000 units	15,000 units

The companys estimated total manufacturing overhead for the year is RM2,656,000 and

the companys total direct labour hours for the year is 64,000.

Required:

Compute the predetermined overhead rate based on the traditional method of overhead absorption and use it to determine the unit product cost for each of the companys two products under the traditional method. (7 marks)

b)Samli Company estimates that annual manufacturing overhead costs will be $600,000. Estimated annual operating activity bases are: direct labour cost $460,000, direct labour hours 40,000 and machine hours 80,000. The actual manufacturing overhead cost for the year was $602,000 and the actual direct labour cost for the year was $456,000. Actual direct labour hours totalled 40,200 and machine hours totalled 79,000. Samli applies overhead based on direct labour hours.

Required

(i)Compute the predetermined overhead rate and determine the amount of manufacturing overhead applied.

(ii)Determine if overhead is over- or under applied and the amount.

(10 marks)

c)Give THREE (3) reasons for over or under absorption of overhead costs as per your computation in part b (ii).

(3 marks)

(Total: 20 marks)