Current Designs has two main product linesCustomade trolleys, which are handmade and very labor-intensive, and Heavy duty trolleys, which require less labor but employ more expensive equipment. Current Designs' controller, Dina, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits.

Dina has decided to use the following activities and costs to evaluate the methods of assigning overhead.

Activities	Amount (RM)
Designing new models	121100
Creating and testing prototypes	152000
Purchasing and refining materials	188500
Assembly line	68000
Supervision	180000
Inspection and storage (these costs are related to space required in the building)	190400
TOTAL	900000

As Dina examines the data, she decides that the cost of assembly line can be directly assigned to each of these product lines and do not need to be assigned with the other costs. The purchasing and refining materials include direct materials costs of RM100,000 where 60% is for Customade

trolleys and 40% is for Heavy duty trolleys. Materials purchased on a just in time basis and all products are finished on the same day started thus there is no inventory for raw materials or work in process.

Current Designs uses RM234,000 in direct labor costs to produce 1,000 Customade trolleys and RM286,000 in direct labor costs to produce 4,000 Heavy duty trolleys each year. Dina is considering one of the following three methods.

1. One method of assigning overhead would assign the common costs to each product line by using an assignment basis such as the number of employees working on each type of trolley or the amount of factory space used for the production of each type of trolley. Diane knows that about 50% of the area of the plant and 50% of the employees work on the Customade trolleys, and the remaining space and other employees work on the Heavy duty trolleys.

2. Another method of assigning overhead is to use direct labor dollars as an assignment basis.

3. Activity-based costing requires a cost driver for each cost pool. Use the following information

Activity cost pools	Cost drivers	Driver Amount for Customade trolleys	Driver Amount for Heavy duty trolleys
Designing new models	Number of models	3	1
Creating and testing prototypes	Number of prototypes	6	2
Purchasing and refining materials	Number of materials order	12	1
Supervision	Number of employees	12	12
Inspection and storage	Number of hours	15000	2000

CASE REQUIREMENTS:

You are required to write a report for Dina that include the following:

1. Compare the differences between three overhead assignment methods and recommend the best method to adopt.

2. Recommend the appropriate price for each product assuming a target net income of RM200,000 and all units made are sold.