Here are the cost prices for the manufacturing support of Enterprise Beaurivage lte for September 2020

Cost grouping centre Cost

Energy 40 000

Material handling 90 000

Setting 80 000

Inspection Quality 40 000

Total 250 000$

The costing system in force allocates support costs to finished products based on the number of machine-hours and it is estimated that in September 2020 this number was 50,000. Several bids were rejected. led the company's president and chief executive officer, Roy Beaurivage, to ask the controller to adopt an activity-based accounting system.

Indeed, he was told that this type of accounting provides a more accurate estimate of the cost of products. The controller therefore collected the following data:

Activity cost driver available capacity Cost

Electric Power Kilowatt Hour 20 000 kWh 40 000 $

Material handling material movement 5 000 movement 90 000

Machine settings Number settings 1 000 settings 80 000

Inspection quality Number of inspections 2 000 inspections 40 000

The company recently received a request for a quotation regarding the supply of

1,000 units of its M5 product. Here are the estimates that have been made for the production of 1,000 units of M5.

Item Quantity

Raw material costs $ 20,000

Direct labor costs $ 18,000

Machine hours 1 800

Direct labour hours 2,000

Kilowatt-hours of electricity 2,000

Number of material movements 40

Number of machine settings 5

Number of quality inspections 20

Work to do :

1. What is the estimated unit cost of M5 under the current cost system?

2. What would the unit cost estimate for M5 be if we used an activity-based accounting system?

3. Is the M5 product more profitable than the company believes when relying on its old costing system? Explain.

4. Identify 2 general advantages associated with using activity-based accounting.