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Naturefine Inc. produces 2 types of products, Oak and Pine. It expects to produce 45,000 units of Oak and 60,000 units of Pine. Naturefine's total
Naturefine Inc. produces 2 types of products, "Oak and Pine". It expects to produce 45,000 units of Oak and 60,000 units of Pine. Naturefine's total direct labour cost for Oak is expected to be $1,035,000 and $690,000 for Pine. Direct material cost in 2021 is expected to be $27.00 per unit for Oak and $30.00 per unit for Pine. Other manufacturing costs are considered as overhead. The estimated total annual overhead for the year is $2,100,000. Currently, Naturefine allocates its overheads based on direct labour hours. Oak requires 1.0 direct labour hours, whilst Pine requires 0.5 direct labour hours per unit to complete. The company is deciding to use the activity-based costing (ABC) system to allocate all its overheads. The company estimates that Energy costs amounts to $950,000; Mixing costs amounts to $850,000; and Quality control costs amounts to $300,000. Naturefine obtained the following information : Energy Mixing Quality control Cost Driver Machine Hours Processing Hours No. of Inspections Oak 200,000 52,500 1 Pine 300,000 97,500 2 Required: (a) Calculate the total cost of Oak and total cost of Pine (assuming that the expected no. of units are produced) using the traditional costing system. (b) Calculate the total cost of Oak and total cost of Pine (assuming that the expected no. of units are produced) using the activity-based costing system. (C) Suppose the company decides to use ABC to set their selling price. What would be the minimum selling price per unit for each product if the company requires a gross profit margin of 45% for all products? (d) Assume that Energy cost increased by 25% and Mixing cost decreased by $100,000. Calculate the total cost of Pine only (assuming that the expected no. of units are produced and the total driver units remains the same) using the activity- based costing system. (Parts (alto (d.21 marks)
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