Question 1 Tum Tum Foods Ltd (TTFL) is a manufacturing of Baked Luncheon and other meat products. Recently, TTML's major high-volume selling product, baked chicken Luncheon, has come under intense pressure from its competitor, Yum Foods Ltd (YFL). YFL uses modern manufacturing processes. TTFL's applies manufacturing overhead using a plant-wide overhead rate based on the number of direct labor hours worked. Prices are based on absorption cost plus a 40% markup. YFL sells its Baked chicken Luncheon for $8.50 per 1KG pack. The owner and manager of ITFL, Shaun Murphy, are now getting concerned about the sales of their product as the competition from YFL is fiercely tearing down their business. Murphy's elder son informs his dad about activity based that he has recently learnt at the university and says that they need to relook at the costing method, go ahead. With the help of his family members, the elder son developed activity-based costing (ABCO system and identified the following bill of activities for the production: Annual volume: 10,000 1kg packs Batch sixe: 250 1kg packs Activity Quantity of activity Cost per unit driver used activity driver Inspect meat 30 inspections $50 per inspection Disposal of poor 200 kg $4 per kg meat Move to mincing 80 barrow loads $8 per barrow room Load mincer* 40 loads $30 per load Operate mincer 5000 kg $2.50 per kg Unload mincer* 60 loads $25 per load Move to mixing 80 barrow loads $15 per barrow room Load mixer* 60 loads $20 per load Operate mixer 60 loads $40 per load Unload mixer* 60 loads $20 per load Move to packing 80 barrow loads $10 per barrow room Pack meat into 10000 skins $0.50 per skins skins Move to 500 trolley loads $8 per trolley smokehouse Move to truck 500 trolley loads $15 per trolley *These activities must be performed more than once per batch because of the limited capacity per machine. Note: The above analysis (Bills of Activities and costs) accounts for direct labour and manufacturing overhead activities Direct material cost per unit is $3.00 Required: . 3. Calculate the cost per unit for TTFL's luncheons using activity-based costing (7 marks) 4. What target cost would TTFL have to set for its luncheons if it wished to match the YFL's price and maintain its existing markup? (3 marks) 5. By what amount TTFL should decrease its cost to complete with YFL's price? (3 marks) 6. Identify four non-value added activities from TTFL's bill of activities to produce luncheons. (2 marks) 7. Suggest two possible root cause cost drivers for each of the non-value added activities identified in (6) above. (4 marks)
