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Ikhwan Sdn Bhd (ISB) makes two types of trophies, Deluxe and Basic. Ikhwan's traditional costing system has two direct cost categories (materials and labor) and
Ikhwan Sdn Bhd (ISB) makes two types of trophies, Deluxe and Basic. Ikhwan's traditional costing system has two direct cost categories (materials and labor) and one indirect cost pool. Thetraditional costing system allocates indirect costs on the basis of machine hours. Recently, the owners of the company have been concerned about a decline in the market share for deluxe trophies. Information related to ISB production for the most recent year is as follows: The owners have heard of other companies in the industry that are now using an activity-based costing (ABC) system and are curious of how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for ISB, the owners identify six activities as generating indirect costs: production scheduling, material handling, machine setup, assembly, inspection, and marketing. ISB collected the following data related to the indirect cost activities: Marketing costs were determined to be 3% of the sales revenue for each type of trophies. REQUIRED: a.Calculate the unit cost of deluxe and basic trophies based on a single plant-wide overhead rate. (Show all workings) b.Calculate the unit cost of deluxe and basic trophies if ISB allocates overhead costs using ABC system. c.Explain why plant-wide and ABC system show different costs for the deluxe and basic trophies. d.Discuss how ISB might use the new cost information from its ABC system to address the declining market share for deluxe trophies. elExplain the FOUR (4) levels of activities in ABC system
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