Part B. The Conversion Cycle. [Up to 500 words]

You are a well-known management accountant of the area. Sara is your one of the best friends who is the Managing Director of XYZ Limited.1 Last Friday, you met with Sara, and she was worried about some accounting issues of XYZ Limited. She requested you to provide with her the expert opinion on the components of overhead and the logical cost driver. For this expert opinion, she forwarded you the following information on Monday morning.

For years, XYZ Limited has allocated overhead based on total machine hours. A recent assessment of overhead costs has shown that these costs are now in excess of 45 percent of the

1 XYZ Limited is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores.

HI5019 T2 2021 - Assessment 2: Group Assignment Page 2 of 10

companys total costs. Sara is specifically worried about this variance and as a Managing Director, she is trying to better control overhead. For this purpose, the head of the management accountant adopted an activity-based costing system. Each cutting board goes through the following processes:

As an attempt to better control overhead, XYZ Limited is adopting an activity-based costing system. Each cutting board goes through the following processes. The given data reveals that cutting is the first process. In this process, boards are selected from inventory and are cut to the required width and length. Imperfections in boards (such as knots or cracks) are identified and removed. The second process is assembly. In this process, cut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together

until the glue sets.

The third process is shaping. Once the glue has set, the boards are sent to the shaping process, where they are cut into specific shapes. After being shaped, the cutting boards must be sanded smooth. In this setting, sanding is the fourth process.

The fifth process is finishing. In this process, sanded cutting boards receive a coat of mineral oil to help preserve the wood. The last process is packing. In the packing process, finished cutting boards are placed in boxes of 12. The boxes are sealed, addressed, and sent to one of the kitchen stores.

Required: Suggest the most suitable component of overhead for XYL Limited. Further, determine a logical cost driver for each process.