Makcik Naimah Klassie Cookie Company manufactures and sells three flavors of cookies:

Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to $1,000$ cookies

based on the size of the ovens and cookie molds owned by the company. Based on budgetary

projections, the information listed below is available:

Macaroon

Sugar

Buttercream

Projected sales in units

$500,000$

$800,000$

$600,000$

PER UNIT data:

Selling price

RM$0\mathrm{.}80$

RM$0\mathrm{.}75$

RM$0\mathrm{.}60$

Direct materials

RM$0\mathrm{.}20$

RM$0\mathrm{.}15$

RM$0\mathrm{.}14$

Direct labor

RM$0\mathrm{.}04$

RM$0\mathrm{.}02$

RM$0\mathrm{.}02$

Hours per $1000-$unit batch:

Direct labor hours

$2$

$1$

$1$

Oven hours

$1$

$1$

$1$

Packaging hours

$0\mathrm{.}5$

$0\mathrm{.}5$

$0\mathrm{.}5$

Total overhead costs and activity levels for the year are estimated as follows:

Activity

Overhead costs

Activity levels

Direct labor $2,400$ hours

Oven

RM$210,000$

$1,900$ oven hours

Packaging

RM$150,000$

$950$ packaging hours

RM$360,000$

Required:

a$)$Determine the activity$-$cost$-$driver rate for packaging costs. $[5$ marks$]$

b$)$Using the activity$-$based costing system, for the sugar cookie:

$($i$)$compute the estimated overhead costs per thousand cookies.$[5$ marks$]$

$($ii$)$compute the estimated operating profit per thousand cookies. $[5$ marks$]$

c$)$Using a traditional system $($with direct labor hours as the overhead allocation base$),$ for the sugar cookie:

$($i$)$compute the estimated overhead costs per thousand cookies.$[5$ marks$]$

$($ii$)$compute the estimated operating profit per thousand cookies. $[5$ marks$]$

d$)$From the above calculations, explain

$($i$)$the difference between the profits obtained from the traditional system and the

activity$-$based costing system. $[5$ marks$]$

$($ii$)$which system provides a better estimate of profitability.$[5$ marks$]$

e$)$Explain whether activity$-$based costing systems always provide more accurate

product costs than conventional cost systems.

$[10$ marks$]$

f$)$Explain how cost drivers are selected in activity$-$based costing systems.

$[5$ marks$]$