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Paper Specialist Ltd, a small and medium enterprise, specialises in paper products which are being categorised into three major groups: Wet Wipes, Tissues and Diapers. The market for Wet Wipes is expected to expand in the future but Paper Specialist Ltd is currently struggling to maintain its market share due to the intense price competition in the industry. The market for Diapers is assessed to be least price-sensitive among all products. The company currently uses the step-down method to allocate its Material Handling (MH) and Quality Assurance (QA) costs to the three product groups, and prices all products using a cost-plus basis. The cost of MH and QA before allocation were $5,700,000 and $3,030,000, respectively. The costs following the allocation are as shown below: Step-Down Method Cost before allocation Allocate Material Handling: Allocate QA: Wet Wipes Tissues $2,700,000 $6,450.000 $1,368,000 $2.280,000 $667,200 $1,834,800 $4,735,200 $10,564,800 Diapers $4.875.000 $912,000 $1,668,000 $7,455,000 Due to the increased intensity of competition, the company is contemplating the activity-based costing method to help understand and control its costs better. The following are the costing and operating details collected for the pilot testing purpose. Documentation Fork Lift Truck Depreciation Palletizing Inspection Total MH $1,350,000 $600.000 $3,750,000 SO $5,700,000 QA $1,950,000 $300,000 $0 $780,000 $3,030,000 Total $3,300,000 $900,000 $3,750,000 $780,000 $8,730,000 Wet Wipes 8 Total 44 12 Tissues 21 28 290 880 Diapers 15 20 160 Number of process checklist forms Fork Lift Truck Hours Number of pallets Number of inspection hours 60 50 500 2,000 320 800 Required: Compute the activity-based cost allocated to all products. Would you recommend for the change to ABC? Explain. Paper Specialist Ltd, a small and medium enterprise, specialises in paper products which are being categorised into three major groups: Wet Wipes, Tissues and Diapers. The market for Wet Wipes is expected to expand in the future but Paper Specialist Ltd is currently struggling to maintain its market share due to the intense price competition in the industry. The market for Diapers is assessed to be least price-sensitive among all products. The company currently uses the step-down method to allocate its Material Handling (MH) and Quality Assurance (QA) costs to the three product groups, and prices all products using a cost-plus basis. The cost of MH and QA before allocation were $5,700,000 and $3,030,000, respectively. The costs following the allocation are as shown below: Step-Down Method Cost before allocation Allocate Material Handling: Allocate QA: Wet Wipes Tissues $2,700,000 $6,450.000 $1,368,000 $2.280,000 $667,200 $1,834,800 $4,735,200 $10,564,800 Diapers $4.875.000 $912,000 $1,668,000 $7,455,000 Due to the increased intensity of competition, the company is contemplating the activity-based costing method to help understand and control its costs better. The following are the costing and operating details collected for the pilot testing purpose. Documentation Fork Lift Truck Depreciation Palletizing Inspection Total MH $1,350,000 $600.000 $3,750,000 SO $5,700,000 QA $1,950,000 $300,000 $0 $780,000 $3,030,000 Total $3,300,000 $900,000 $3,750,000 $780,000 $8,730,000 Wet Wipes 8 Total 44 12 Tissues 21 28 290 880 Diapers 15 20 160 Number of process checklist forms Fork Lift Truck Hours Number of pallets Number of inspection hours 60 50 500 2,000 320 800 Required: Compute the activity-based cost allocated to all products. Would you recommend for the change to ABC? Explain

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