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Ahmad Limited manufactures only three (3) products: alpha, beta and gamma. The company uses the activity-based costing system with the four main cost drivers of

Ahmad Limited manufactures only three (3) products: alpha, beta and gamma. The company uses the activity-based costing system with the four main cost drivers of activity noted in the table below. Any additional overhead costs are currently allocated using a plant-wide overhead rate based on direct machine hours. External consultants have recommended, however, that the company should switch to a traditional absorption costing system.

Production estimates for 2022 are as follows: 150,000 units of alpha, 55,000 units of beta and 85,000 of gamma. Each alpha unit requires one (1) direct labour hour and half an hour of machine time. Each beta unit requires two (2) direct labour hours and three and one-half (3.5) hours of machine time. Each gamma unit requires three (3) direct labour hours and one (1) hour of machine time to produce.

The direct material and direct labour costs included in the three products for 2021 are as follows:

Items

Alpha

Beta

Gamma

Direct Material (per component)

$120

$180

$60

Direct Labour (per component)

$50

$80

$120

Management estimates that direct material costs will increase 10% in 2022 whilst direct labour costs will increase 5%.The budgeted (estimated) total factory overhead data for 2022 is given as:

Items

Budgeted Overhead ($)

Estimated Volume Level

Production Set-Ups

$13,480,000

80 Set-Ups

Material Handling

$9,570,000

25,000 kgs

Packaging and Shipping

$8,520,000

18,000 boxes

Transportation Trips

$5,250,000

800 trips

Total Factory Overhead

$41,970,000

Based on analysis of the consultants of the four overhead activities, it is estimated the production activities in 2022 will be as follows for alpha and beta with balance to gamma:

Activity

Alpha

Beta

Production Set-Ups

35 Set-Ups

15 Set-Ups

Material Handling

7,000 kgs

10,000 kgs

Packaging and Shipping

5,000 boxes

7,000 boxes

Transportation Trips

250 trips

400 trips

Required:

  1. Calculate the cost of all products based on a traditional plant-wide rate using direct labour costs to assign overheads.

  1. Cost the three products using an activity-based costing system.

please provide answer in writing and not image.

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