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Pelican Smokers Ltd produces two types of food smokers: Gas and Electric. Below is the budgeted information about the two products: Units produced per
Pelican Smokers Ltd produces two types of food smokers: Gas and Electric. Below is the budgeted information about the two products: Units produced per year Direct material cost per unit Direct labour cost per unit Gas Electric 2,000 5,000 $150 $200 $250 $450 The company is currently using the traditional costing method to allocate and apply the manufacturing overhead to the two products based on machine hours. The estimated total manufacturing overhead is $1,875,000 per year. In a recent meeting, the management has recommended using activity-based costing to determine the product costs with a view to enhancing its competitive advantage in the market. The management accountant has identified three cost pools, and the overhead for each cost pool is as follows: Machine setups Machine processing Material requisitions Total overhead S 100,000 1,575,000 200,000 $ 1,875,000 The cost drivers for each of the above cost pools and their expected activities are as follows: Gas Electric Total Machine setups 100 Machine hours 4,500 Material requisitions. 360 150 10,500 140 250 15,000 500
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