MANAGEMENT ACCOUNTING

Question 3 Company A uses a traditional system in costing its products. Using this system, the company allocates all indirect production costs to products in proportion to their direct labour costs. However, recently the company has been contemplating in switching to an Activity-Based Costing (ABC) system. Three products are produced: X, Y and Z. Direct costs, indirect costs and cost-driver activity for each product for a recent month are as follows: X Y Z Direct-materials cost RM20,000 RM45,000 RM120,000 Direct-labour cost RM44.000 RM 1,000 RM 3,000 Kilowatt hours 50,000 200,000 150,000 Number of inspections 13 5 2 Activity Cost Driver Materials handling Direct-materials cost Quality inspection Number of inspections Electricity energy Kilowatt hours Total indirect production costs Indirect production cost RM10,000 RM20,000 RM20,000 RM50.000