Question 1

Bread Sdn Bhd manufactures two products, Regular and Deluxe, and applies overhead on the

basis of direct labor hours.Anticipated overhead and direct labor time for the upcoming

accounting period are RM1,600,000 and 25,000 hours, respectively.Information about the

company's products are as follows.

Regular

Estimated production volume: 3,000 units

Direct materials cost: RM28 per unit

Direct labor per unit: 3 hours at RM15 per hour

Deluxe

Estimated production volume: 4,000 units

Direct materials cost: RM42 per unit

Direct labor per unit: 4 hours at RM15 per hour

Bread's overhead of RM1,600,000 can be identified with three major activities:

Order processing (RM250,000)

Machine processing (RM1,200,000)

Product inspection (RM150,000)

These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively.Data relevant to these activities follow.

Orders Processed Machine Hours Worked Inspection Hours

Regular 320 16,000 4,000

Deluxe 180 24,000 6,000

Total 500 40,000 10,000

Required:

A.Compute the application rates that would be used for order processing, machine processing, and product inspection in an activity-based costing system. (6 Marks)

B.Assuming use of activity-based costing, compute the unit manufacturing costs of Regular and Deluxe if the expected manufacturing volume is attained. (15 Marks)

C.How much overhead would be applied to a unit of Regular and Deluxe if the company used traditional costing and applied overhead solely on the basis of direct labor hours?Identify whether the product has been overpriced or underpriced? (9 Marks)

(Total: 30 Marks)