Given Information Additional Cost and Management Accounting information The finance team have just arrived from an executive course and have learnt that activity- based costing is more accurate than applying overheads using direct labour hours as they have done in the past. They have therefore decided that this should be investigated before the arrival of the new machine. The following fixed overhead cost information was compiled by the governments costing analyst: : Additional information required In addition to the license cards, the department offers temporary license cards Temporary License cards Planned production and sales 12 000 cards Number of setups 25 setups Purchase order size 7 000 cards Processing hours 8 000 hours Packaging time 1800 hours Cost Pool Ordering Material handling Processing Packaging Cost R330 000 R655 000 R1 545 000 R770 000 R3 300 000 Cost driver Purchase Orders Number of set-ups Processing hours Packaging Hours QUESTION 12 Cost and Management Accounting (Individual work) 1. Using direct labour hours as the base for applying manufacturing overhead cost to products, undertake the following: a) Calculate the predetermined overhead rate that will be used during the upcoming year. b) Calculate the unit product cost of one license card c) Discuss whether you agree with direct labour hours being used as a base to apply manufacturing overheads. Should you not agree, recommend a more appropriate 30 March 2022 traditional base for the Government to use. 2. Using activity-based costing as a basis for applying manufacturing overhead cost to products, calculate the total amount of manufacturing overhead cost assigned to the license cards for the year. 3. The most critical step in activity-based costing is identifying cost drivers. Define a cost driver and briefly discuss whether you agree with this statement or not. Planned production and sales Number of setups Purchase order size Processing hours Packaging time License cards 80 000 cards 32 setups 20 000 cards 15 000 hours 12 400 hours The budget for the coming year includes fixed production overhead costs of R3 300 000. Production overheads are applied using direct labour hours at the moment. The expected direct labour cost is R2 500 000 and the total budgeted direct labour hours are 18 334 hours. The above-mentioned labour costs are considered a variable cost. The license cards cost R25 per card. Each card requires six minutes of labour. Packaging is R5 per card. Given Information Additional Cost and Management Accounting information The finance team have just arrived from an executive course and have learnt that activity- based costing is more accurate than applying overheads using direct labour hours as they have done in the past. They have therefore decided that this should be investigated before the arrival of the new machine. The following fixed overhead cost information was compiled by the governments costing analyst: : Additional information required In addition to the license cards, the department offers temporary license cards Temporary License cards Planned production and sales 12 000 cards Number of setups 25 setups Purchase order size 7 000 cards Processing hours 8 000 hours Packaging time 1800 hours Cost Pool Ordering Material handling Processing Packaging Cost R330 000 R655 000 R1 545 000 R770 000 R3 300 000 Cost driver Purchase Orders Number of set-ups Processing hours Packaging Hours QUESTION 12 Cost and Management Accounting (Individual work) 1. Using direct labour hours as the base for applying manufacturing overhead cost to products, undertake the following: a) Calculate the predetermined overhead rate that will be used during the upcoming year. b) Calculate the unit product cost of one license card c) Discuss whether you agree with direct labour hours being used as a base to apply manufacturing overheads. Should you not agree, recommend a more appropriate 30 March 2022 traditional base for the Government to use. 2. Using activity-based costing as a basis for applying manufacturing overhead cost to products, calculate the total amount of manufacturing overhead cost assigned to the license cards for the year. 3. The most critical step in activity-based costing is identifying cost drivers. Define a cost driver and briefly discuss whether you agree with this statement or not. Planned production and sales Number of setups Purchase order size Processing hours Packaging time License cards 80 000 cards 32 setups 20 000 cards 15 000 hours 12 400 hours The budget for the coming year includes fixed production overhead costs of R3 300 000. Production overheads are applied using direct labour hours at the moment. The expected direct labour cost is R2 500 000 and the total budgeted direct labour hours are 18 334 hours. The above-mentioned labour costs are considered a variable cost. The license cards cost R25 per card. Each card requires six minutes of labour. Packaging is R5 per card