managerial accounting

Question 2 (15 marks) Seng Seng Co. Lid. has been using machine-hours as the basis to determine overhead costs for all products. An Activity-Based Costing (ABC) project team is just formed and suggests the following overhead cost pools, cost drivers and estimated cost driver levels for manufacturing overheads: Estimated Cost Overhead Cost Pool Cost Driver Driver Level Budgeted Overhead Machine setups Number of setups 200 $200,000 Quality control Number of inspections 2,000 400.000 Other overhead costs Machine-hours 20,000 200,000 The company has recently completed production of 1,000 barrels for each of the two products, Cherry Cola and Champagne Cola. Cherry Cola is distributed primarily through supermarkets while Champagne Cola is sold to restaurants. The production requires the following operations: Number of Cost Drivers Cherry Cola Champagne Cola Machine setups 2 setups 100 setups Quality control 4 times 40 times Other overhead costs 2,000 hours 2,000 hours Required: (a) Determine the overhead costs per barrel of Cherry Cola and Champagne Cola using the costing system suggested by the ABC project team. (11 marks) (b) Explain how the choice of costing system can be an important competitive factor for Seng Seng Co. Ltd. (4 marks)