90.2K

Verified Solution

Link Copied!

BigB Limited is a manufacturer with a large variety of products. One of the most popular products is product A. In many year, BigB estimates production cost of product A based on the traditional costing method in which the manufacturing overhead costs are allocated using direct labour cost as the single cost driver. Recently, top manager have been very concerned about declining profitability despite a healthy increase in sales volume of Product A. The declining profitability of Product A was not expected as the company has installed new machine and applied new automation technology to increase production efficiency.

As a new management accountant of the firm, it is required to evaluate the costing of Product A. Given that the company also incurs a substantial amount of manufacturing overhead, have undertaken an Activity-based analysis. The manager have determined that the company's total manufacturing overhead can be identified with the following activities:

Activity (activity driver} Budgeted activity Total quantity of activity drivers Purchasing (number of purchase orders} $1,042,200 1133' Material handling (number of setups} $1,296,000 2?00 Quality control {number of batches} $259,200 1080 Processing time "' number of processing hours} $1, 729, 800 144150 Assembling time { number of assembling hours} $604,800 50400 Packaging time (number of packaging hour} $463,000 39000 Product A Estimated production volume (units) 1500 Direct material cost (per unit) $6.40 Direct labour cost (per unit) 0.9 Number of purchase orders 4 Number of batches 4 Number of setups (per batch) 3 Processing time (hour per 100 units) 1 Assembling time (hour per 100 units) 0.5 Packaging time (hour per 100 units) 0.5

Answer & Explanation Solved by verified expert

See Answer