Question 3 You have been appointed as the assistant to the financial controller of an electronics manufacturing company and have recently attended a seminar on Activity-based costing (ABC). The company's presently used traditional costing system has three cost categories - that is, direct materials, direct labour and indirect production costs. It allocates indirect productions costs on the basis of direct labour cost. The following is the 2019 budget for the automotive controls department:- Direct materials Direct labour Indirect production costs Total cost RM 60,000,000 35,000,000 24,500,000 119,500,000 You are now suggesting to the financial controller of the company to experiment with an ABC system in the automotive controls department. After much investigation, you identified four main activities that cause the indirect production costs in the department and selected a cost driver to use as an allocation basis for each activity as follows: Activity Cost-Allocation Base Budgeted 2019 Cost (RM) Receiving Direct materials cost 4.800.000 Assembly Number of control units 13,800,000 Quality control Quality control hours Shipping Number of boxes shipped 4.100.000 Total indirect production costs 24.500.000 Other information collected in relation to 2019 for the automotive controls department: expects to produce 92.000 control units; expects to use 600 quality control hours; and > expects to ship 8,200 boxes. www.800.000 Required: (a) Compute the allocation rate used if the company allocates its indirect production costs using its traditional costing system. (2 marks) (b) Compute the allocation rates used if the company allocates its indirect production costs using your proposed ABC system. (4 marks) Suppose that the company charges a selling price based on 30% above total production cost. An order came in from a customer for 5,000 control units. You estimate that filling the order will require RM8,000,000 of direct materials cost and RM2,000,000 of direct labour cost. It will require 50 hours of quality control inspection time and will be shipped in 600 boxes. Compute the selling price charged for the 5,000 control units if your company uses its traditional costing system; and (11) the ABC system proposed. (15 marks) (d) Explain why the use of non-volume and volume drivers in the ABC system is more accurate compared with the use of only volume drivers in the traditional system. (4 marks) [Total: 25 Marks]