Q1: Freedom Machine Pty Ltd manufactures two bicycles; the Racing Bike and the Cargo Bike. Initial calculations completed by the cost accountant have provided the following information for year ending 2020:

Under the ABC method; the total over-head applied to the product Race Bike for year ending 2020 is closest to:

Select one:

a. $583,871

b. Insufficient information has been provided; it is not possible to determine the allocation of the overhead.

c. $678,350

d. $542,275

Under the Traditional method; using an indirect cost rate of $54.21 per direct labour hour. The PER UNIT over-head applied to the product Cargo Bike for year ending 2020 is

Select one:

a. $109.43

b. Insufficient information has been provided; it is not possible to determine the per unit allocation of the overhead.

c. $54.21

d. $37.29

Notes

Q2: After completing the costing process, Freedom Machine Pty Ltd provides the following per unit total cost for each product; Race Bike and Cargo Bike

freedom c

Knowing that the manufacturing process involves multiple activities and that the two products differ substantially, advise management which costing method either Traditional or ABC, provides better information and why?

Estimated number of Cost Driver Race Bike Cargo bike Indirect cost rate $5.00 8,000 6,000 Activity Cost Activity driver Fabrication Direct labour hours Set Up Number of set ups Quality Control Number of tests Engineering Design design adjustments $16.00 12,000 3,000 $120.00 800 500 $85.71 2,500 1,000 Race Bike 4000 Cargo Bike 6000 Units produced Direct material per unit Direct labour per unit $ 1,000.00 $ 800.00 $ 2,000.00 $ 1,200.00 Costing method Traditional ABC Per unit product cost Race Bike Cargo Bike $ 3,109.43 $ 2,054.71 $ 3,135.57 $ 2,037.29