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Calculate the product cost per unit for Gold circuit board, Platinum circuit board and Silver circuit board under traditional absorption costing. Using the product cost information, compute revenue for each product.
Annually, Southern Digital produces and sells 15,000 units of Gold circuit board, 12.000 units of Platinum circuit board, and 18,000 units of Silver circuit board to TWSB. "Southern Digital Sdn Bhd. currently measures profitability for each circuit board using a traditional absorption costing system. All overhead costs are charged to the three circuit boards using direct labour hours as the basis for allocation. I cannot see the problem. The overall profit for the company is the same no matter which method we use. It seems to make no difference to me." After analyzing the manufacturing activities and costs for Southern Digital, the information for the three products is as follows: Gold Platinum Silver Selling price per unit RM7.00 RM12.00 RM13.00 Direct material usage (kg) per 2kg 3kg 4kg unit Rate 1.20 1.20 1.20 Direct labour hours 0.1 0.15 0.2 per unit The price for direct materials remains constant throughout the year at RM1.20 per kg. Similarly, the direct labour cost for the whole workforce is RM14.80 per hour. The annual overhead costs are as follows: Activity cost pool Overhead cost (RM) Machine set-up costs 26,550 Production run 66,400 Procurement costs 48,000 Delivery costs 54,320 The study by the taskforce revealed the following information pertaining to cost drivers and marketing cost: The study by the taskforce revealed the following information pertaining to cost drivers and marketing cost: b. a. The machine setup overhead was generated by charging the job to be run and should be related to the number of machine setup. b The people in the production department, process, inspect and move each batch of components for a production run. This work required the same amount of time regardless of whether the production run was long or short. Thus, the appropriate cost driver should be production hours per unit. c. The procurement overhead costs arise from number of purchase orders. The higher the number of purchase orders, the higher the procurement overhead costs. The appropriate cost driver should be the number of purchase orders. d. The delivery costs have nothing to do with direct labour-hours. These costs are more likely to vary with the number of deliveries per annum. The taskforce gathered the following information about the cost driver volume for each product: Activity cost driver Gold Platinum Number of machine set-up 16 12 8 Production hours per unit 0.9 Number of purchase orders 42 Number of deliveries per annum Silver 0.7 0.5 24 48 28 30 62
