Question 2

Antraxx Sdn Bhd is a company producing a variety of vase. One of its main products is Charm. Charm is a high-volume item totaling 30,000 units per year. Currently the company is using traditional costing method.

To produce Charm, the company used a premium grade of material YY. This material was purchased at a price of RM 8 per kg. Each unit of Charm required 3 kg of material YY.

Direct labor cost per unit of Charm is RM 12. The labor will be paid RM 6 per hour.

Budgeted overhead during the year is RM55,000, and the overhead is absorb based on direct labour hour. The budgeted direct labour hours during the year is 4,000 hours.

The company is planning to introduce ABC system. The information that has been developed based on its four main activities are as follow:

Activity cost pool	Cost driver	Annual budgeted overhead (RM)
Machine setups	Number of setups	126,000
Designing	Number of machine hours	176,000
Quality control	Number of inspections	200,000
Purchase order	Number of orders	45,000

Relevant annual data for the activities are as follows:

Cost driver	Charm	Other products
Number of setups	100	40
Machine hours	15,000	19,000
Number of inspections	60	150
Number of orders	160	170

Required:

a) Compute the cost per unit of product Charm using:

i. Traditional Costing System

ii. Activity Based Costing (ABC) system.

b) Based on your answer above, advise the effect on Charm selling price and the companys profit if the company changes from current costing system to ABC system.