Question
Pintar Sdn. Bhd. (PSB) produces a single product. Last month, the company had a net operating income of RM24,000 using absorption costing and RM16,500 using
Pintar Sdn. Bhd. (PSB) produces a single product. Last month, the company had a net operating income of RM24,000 using absorption costing and RM16,500 using variable costing. The fixed manufacturing overhead cost was RM4 per unit. Assume that there were no beginning inventories and 15,200 units were produced last month.
(e) A commonly used costing system has been critised for the tendency among its users to build up inventory levels unnecessarily. Determine which one of the two costing systems and explain why it leads to such buildups. (3 Marks)
(f) Suggest THREE (3) possible actions that managers can take to counteract such unnecessary inventory buildups as mentioned in (e). (3 Marks)
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