Question $1$

Best Solid Doors Inc. $($BSD$)$ is a Malaysia$-$based door manufacturer. It initially produced

only interior doors, but expanded production to include exterior doors several years ago.

The company uses a simple costing system to record and calculate costs for two types of

doors. Under this simple costing system, there are two direct manufacturing cost categories

and one manufacturing overhead cost pool. Manufacturing overhead costs are allocated to

the two types of doors based on machine hours.

BSD sets product price as unit production cost plus $50\%$ markup. According to past sales

records, BSD$\text{'}$s interior doors were very competitive in the market because of affordable

prices and consistent quality. However, the company has observed a decline in the market

share of its interior doors in recent years, especially after the introduction of its exterior

doors.

Information related to BSD$\text{'}$s production for the coming year follows:

The owner of BSD recently heard about activity$-$based costing $($ABC$)$ system and is curious

about how an ABC system would affect the company's product costing. After analysing

the manufacturing overhead costs of BSD$,$ five manufacturing overhead cost pools were

identified. These included production scheduling, material handling, machine setup,

assembly, and inspection. BSD predicted the following data for the coming year:

Question $1$a

Apply the plant$-$wide overhead rate method under BSD$\text{'}$s current simple costing system to

calculate the unit production cost of the interior and exterior doors respectively. Round

your answer to the nearest dollar.

$(4$ marks$)$

Question $1$b

Compute the unit production cost of the interior and exterior doors respectively using an

activity$-$based costing system. Round your answer to the nearest dollar.

$(10$ marks$)$

Question $1$c

Compare the unit production cost of the interior and exterior doors in requirements $($a$)$ and

$($b$),$ and explain the impact of misleading cost information to BSD$.$