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Rajan Electronics is an electronic controls company and Namita Davids is the new financial controller of the company. She was recently sent for a seminar

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Rajan Electronics is an electronic controls company and Namita Davids is the new financial controller of the company. She was recently sent for a seminar on activity-based costing (ABC). Rajan Electronics' traditional absorption cost accounting system has three cost categories: direct materials, direct labour, and indirect production costs. The company allocates indirect productions costs on the basis of direct labour cost. The following is the 2018 budget for the automotive controls department:- After Namita Davids attended the seminar, she suggested that Rajan Electronics experiment with an ABC system in the automotive controls department. She identified four main activities that cause indirect production costs in the department and selected a cost driver to use as a cost-driver for each activity as follows:- In 201 the automotive controls department expects to produce 92,000 control units, use 600 quality control hours, and ship 8,200 boxes. Required: (a) Compute the allocation rate used if Rajan Electronics allocates its indirect production costs using its traditional costing system. (1 mark) (b) Compute the cost driver rates used if Rajan Electronics allocates its indirect production costs using Namita David's proposed ABC system. ( 2 marks) (c) Suppose that Rajan Electronics prices its products at 30% above total production cost. An order came in from XYZ Co. for 5,000 control units. Namita Davids estimates 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. (i) Compute the selling price charged for the 5,000 control units if Rajan Electronics uses its traditional costing system. (3 marks) (ii) Compute the selling price charged for the 5,000 control units if Rajan Electronics uses the ABC system proposed by Namita Davids. (4 marks) (d) Discuss the suitability of the traditional and the ABC systems for Rajan Electronics

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