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Hayya Football Company Hayya is a football accessories manufacturer, headquartered in Lusail, Doha. The company manufactures football related products and accessories. The company uses a
Hayya Football Company Hayya is a football accessories manufacturer, headquartered in Lusail, Doha. The company manufactures football related products and accessories. The company uses a traditional costing system to account for the manufacturing costs of the company's main products. The company allocates total manufacturing overhead of $6,000,000 to four products using a manufacturing overhead rate based on total direct labor cost. That is, the manufacturing overhead cost for each product is determined by multiplying the direct labor cost of each product by the manufacturing overhead rate. Part l: The manufacturing cost of the traditional football The president of the company Mr. Khalid Yaseen has been showing concerns lately with respect to the profitability of the main product (traditional football) because of the increase in its Manufacturing overhead related costs which is over than 150QR per unit. The president thinks that pricing the traditional football above its full cost of 265 would lead to a drop in the market share as competitors with similar specifications are priced aroud 250QR. The president has hired you as a new financial controller, who holds a Certified Management Accountant (CMA) certificate to assess the profitability of each product before eliminating the traditional football product. On the first week you requested the Management and Cost Accounting Department to provide you with additional data related to the four products. Additional data summarizes the direct costs, cost drivers of the overhead categories and the number of units produced: On the first week of your work, the management and cost accounting department provided you with the following table summarizing manufacturing overhead categories and their associated costs: After reviewing the information in the above tables, you surprised to find out that the company has been implementing the traditional costing system even though manufacturing overhead has been driven by several activities. You tried to talk to the president not to dropp the traditional football product by explaining that the current costing system of the company is inadequate. You further explained that the traditional football product could be more profitable than what it seems under the traditional costing system. You advised the president to use a more accurate costing system that assigns overhead costs to activities and then assigns the costs to the four main products based on usage of the activities. The president showed interest in the suggested method and subsequently asked you to prepare a report summarizing the cost per unit for each product accordingly. Required: a) Prepare a report to Mr. Khalid that shows the calculations of the cost per unit for each product under the traditional costing system (10\%) b) Prepare a report to Mr. Khalid that shows the calculations of the cost per unit for each product under and the suggested costing system (ABC). (30\%) c) Explain the meaning of overcosted products and undercosted by using the given cost information in Hayya company. (5\%) d) Write your recommendations to Mr. Khalid assuming he is going to sell to the market at cost plus 20% as a profit margin. (5\%) e) Lastly, explain how the new costing system suggested by you improves the accuracy of reported cost of individual models compared to the old costing system. (5\%)
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