Part A KM Sdn. Bhd. (KM) produces two different types of high quality handbags, Luxury and Superior. Each design is made in small batches. The bags are all made on the same special equipment that is expected to operate at capacity. The equipment must be switched over to a new design and set up to prepare for the production of each batches of products. When completed, each batch of products is immediately shipped to a wholesaler. Shipping costs vary with the number of shipments. KM uses activity-based costing and provides the following budgeted information for the year ended 31 December 2017: Luxury (RM) Total (RM) Superior (RM) 412,920 120,000 Direct material Direct labour 379,290 98,000 792,210 218,000 Manufacturing overhead: Set up Shipping Design Plant utilities and administration Total 65,930 73,910 166,000 243,000 1,559,050 Other information follows: Number of bags Hours of production Number of batches Number of designs Luxury 6,050 1,450 130 Superior 3,350 2,600 60 2 Total 9,400 4,050 190 4 Required: a) Identify the cost categories (unit, batch, etc.) for each cost category. b) Identify the most appropriate cost driver for each cost category of manufacturing overhead and explain briefly your choice of cost driver, c) Calculate the budgeted total costs and cost per unit based on activity-based costing for Luxury and Superior.
Part A KM Sdn. Bhd. (KM) produces two different types of high quality handbags, Luxury and Superior. Each design is made in small batches. The bags are all made on the same special equipment that is expected to operate at capacity. The equipment must be switched over to a new design and set up to prepare for the production of each batches of products. When completed, each batch of products is immediately shipped to a wholesaler. Shipping costs vary with the number of shipments. KM uses activity-based costing and provides the following budgeted information for the year ended 31 December 2017: Luxury (RM) Total (RM) Superior (RM) 412,920 120,000 Direct material Direct labour 379,290 98,000 792,210 218,000 Manufacturing overhead: Set up Shipping Design Plant utilities and administration Total 65,930 73,910 166,000 243,000 1,559,050 Other information follows: Number of bags Hours of production Number of batches Number of designs Luxury 6,050 1,450 130 Superior 3,350 2,600 60 2 Total 9,400 4,050 190 4 Required: a) Identify the cost categories (unit, batch, etc.) for each cost category. b) Identify the most appropriate cost driver for each cost category of manufacturing overhead and explain briefly your choice of cost driver, c) Calculate the budgeted total costs and cost per unit based on activity-based costing for Luxury and Superior.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints
Section: Chapter Questions
Problem 17E
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Part A
KM Sdn. Bhd. (KM) produces two different types of high quality handbags, Luxury and
Superior. Each design is made in small batches. The bags are all made on the same special
equipment that is expected to operate at capacity. The equipment must be switched over to
a new design and set up to prepare for the production of each batches of products.
When completed, each batch of products is immediately shipped to a wholesaler. Shipping
costs vary with the number of shipments.
KM uses activity-based costing and provides the following budgeted information for the
year ended 31 December 2017:
Luxury (RM)
Total (RM)
Superior
(RM)
412,920
120,000
Direct material
Direct labour
Manufacturing overhead:
Set up
Shipping
Design
Plant utilities and administration
Total
379,290
98,000
792,210
218,000
65,930
73,910
166,000
243,000
1,559,050
Other information follows:
Luxury
6,050
1,450
130
Superior
3,350
2,600
60
Total
Number of bags
Hours of production
Number of batches
Number of designs
9,400
4,050
190
2
2
4
Required:
a) Identify the cost categories (unit, batch, etc.) for each cost category.
b) Identify the most appropriate cost driver for each cost category of manufacturing
overhead and explain briefly your choice of cost driver,
c) Calculate the budgeted total costs and cost per unit based on activity-based costing
for Luxury and Superior.
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