UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ACCOUNTANCY AND MANAGEMENT

ACADEMIC YEAR 2020/2021
BACHELOR OF ACCOUNTING (HONs.)
TUTORIAL QUESTIONS
Tutorial 12

1. Which of the following statements is/are correct with respect to ABC?

i Departmental costing systems are refinement of ABC systems
ii ABC systems are useful in manufacturing, but not in merchandising or
service industries
iii ABC system can eliminate cost distortions because ABC develop cost driver
that have caused and effect relationship with the activities performed,

A. I,ii, and iii

B. Ii and iii
C. Iii only
D. None of the above

2. Roadster Company (RC) designs and produces automotive parts. In 2020, actual
variable manufacturing overhead is RM280,000. RC’s simple costing system allocates
variable manufacturing overhead to its three customers based on machine-hours and
prices its contracts based on full costs. One of its customers has regularly complained
of being charged non competitive prices, so RC’s controller Matthew Draper realizes
that it is time to examine the consumption of overhead resources more closely. He
knows that there are three main departments that consume overhead resources: design,
production, and engineering. Interviews with the department personnel and
examination of time records yield the following detailed information:

Department Cost Drivers Manufacturing Usage of cost driver by customer

Overhead contract
2020 (RM) Southern Caesar Jupiter
Motor Motor Auto
Design CAD-design 35,000 150 250 100
per-hour
Production Engineering- 25,000 130 100 270
hours
Engineering Machine- 220,000 300 3700 1,000
hours
280,000
 Required:
i. Compute the manufacturing overhead rate using traditional costing system that
uses machine hours as the allocation base.
ii. Compute the manufacturing overhead allocated to each customer in 2020
using manufacturing overhead rates calculate in (1)
iii. Compute the manufacturing overhead allocated to each customer in 2020
using ABC.

3. SC Johnson manufactures three types of air care product for sale to retailers. SC
Johnson currently operates a standard absorption costing system. The details of
budgeted information for next year is given as follows:

Total
Products Glades All Joy Oust (RM’000)
Sales 60,000 38,000 22,000 120,000
Direct Materials 11,800 6,200 4,000 22,000
Direct Labor 3,700 2,400 1,900 8,000
Fixed Production OH 15,400
Gross Profit 74,600

Production and Sales

(Unit) 1,000,000 1,200,000 600,000

Fixed production overheads are absorbed using a direct material cost percentage rate.
The management accountant of SC Johnson is proposing changing to an activity based
costing system. The main activities and their associated cost drivers and overhead cost
have been identified as follows:

Production
Activity Cost Driver Overhead Cost
(RM’000)
Machine set up Number of set ups 3,600
Quality inspection Number of quality inspection 1,200
Processing Processing time 6,500
Purchasing Number of purchase orders 1,800
Packaging Number of units of product 2,300

Glades All Joy Oust

Batch size (unit) 1,000 2,000 1,500
Machine set ups per batch 3 3 4
Purchase order per batch 2 2 1
Processing time per unit (minutes) 2 3 4
 Quality inspection per batch 1 1 1
Required:

(a) Compute the total fixed production overhead costs using the current absorption
costing system.
(b) Calculate the total profit by using the proposed activity based costing systems.
(c) Briefly describe the benefit(s) that SC Johnson may be able to derive by
changing from its current costing system to the proposed activity-based costing
system.
(d) Identify the stages involved in designing Activity-Based Costing system.

4. Unilever produce three shower gel which are Antibacterial, Mild Care and Cool Fresh
that used same materials. Currently, the company used the traditional costing method.
The company now is considering an activity based costing system that might help them
to improve profitability. The following are the details of the three products:

Antibacterial Mild Care Cool

Fresh
Production and sales Units 15,000 12,000 18,000
Selling price per unit (RM) 7.50 12 13
Direct material usage (kg) per unit 2 3 4
Direct labor hours per unit 0.1 0.15 0.2
Machine hour per unit 0.5 0.7 0.9
Number of production runs per annum 16 12 8
Number of purchase orders per annum 24 28 42
Number of deliveries to retailers per annum 48 30 62

The price for direct materials remained constant throughout the year at RM1.20 per kg.
Similarly, the direct labor cost for the whole workforce was RM14.80 per hour. The
annual overhead costs were as follows:

RM
Machine set up costs 26,550
Machine running costs 66,400
Procurement costs 48,000
Delivery costs 54,320

Required:

(a) Calculate the unit cost for each of the products by using traditional costing
system.
(b) Calculate the unit cost for each of the products by using activity-based costing
system.
(c) Briefly describe the benefit of using activity-based costing.
5. Star Sdn Bhd manufactures two products, Product B and Product H. Product H is a
new product, having been developed as an attempt to enter a market closely related to
that of Product B. Product H is the more complex of the two products, requiring two
hours of direct labour per unit to manufacture compared to one hour of direct labour
for Product B. Product H is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct labour-hours. The
company estimates it would incur RM450,000 manufacturing overhead costs and will
produce 7,500 units of Product H and 30,000 units of Product B during the current year.
Unit costs for materials and direct labour are as follows:

Product B Product H
RM RM
Direct materials 12 25
Direct labour 10 20

Required:

(a) Compute the predetermined overhead rate under the current method of
allocation and determine the unit product cost of each product for the current
year.

(b) The company's overhead costs can be attributed to four major activities. These
activities and the amount of overhead costs attributable to each product for the
current year are given below:

Estimated Expected Activity

Activity Cost Pools Overhead
Costs RM Product B Product H Total

Machine setups required 180,000 600 1,200 1,800

Purchase orders issued 38,382 500 100 600
Machine-hours required 92,650 6,800 10,200 17,000
Maintenance requests issued 138,968 693 907 1,600
450,000

Using the data above, determine the unit product cost of each product for the
current year using an activity-based costing approach

(c) Using the figures from (b), explain the relevance of cost drivers in activity-based
costing.
(d) Describe the usefulness of activity based costing in decision-making.