60.1K

Verified Solution

Link Copied!

Tum Tum Foods Ltd (TTFL) is a manufacturer of Baked Luncheon and other meat products. Recently. TTML's major high-volume selling product, Baked chicken Luncheon, has come under intense pressure from its competitor, Yum Foods Ltd (YFL). YFL uses modern manufacturing processes. TTFL's Baked chicken Luncheon sells for $10.00 per 1kg pack, based on a cost-plus pricing system. TTFL applies manufacturing overhead using a plant-wide overhead rate based on the number of direct labour hours worked. Prices are based on absorption cost plus a 40% markup. YFL sells its Baked chicken Luncheon for $8.50 per 1kg pack. The owner and manager of TTFL, Shaun Murphy, is now getting concerned about the sales of their product as the competition from YFL is fiercely tearing down their business. Murphy's elder son informs his dad about Activity based costing that he has recently learnt at the university and says that they need to relook at the costing method of their product. Murphy: If you want to work on your new costing method, go ahead. With the help of his family members, the elder son developed activity-based costing (ABC) system and identified the following bill of activities for the production: Annual volume: 10,000 1kg packs Batch size: 250 Ikg packs Activity Cost per unit activity driver $50 per inspection $4 per kg Inspect meat Disposal of poor meat Move to mincing room Load mincer Operate mincer Unload mineer Move to mixing room Load mixer Operate mixer Unload mixer Move to packing room Pack meat into skins Move to smokehouse Move to truck Quantity of activity driver used 30 inspections 200 kg 80 barrow loads 40 loads 5000 kg 60 loads SO hamow loads 60 loads 60 louds GO loads RO burrow loads 10000 skins 500 trolley loads 500 trolley loads S8 per barrow $30 per lond $2.50 per kg S25 per load $15 per barrow $20 per load S40 per load S20 per lond $10 per barrow $0.50 per skins S8 per trolley $15 per trolley * These activities must be performed more than once per batch because of the limited capacity per machine. 1 mese activities must be performed more than once per batch because of the limited capacity per machine.

1 Note: The above analysis (Bill of Activities and costs) accounts for direct labour and NONwfactaring overhead activities Direct material cost per unit is $3.00

Required: 1. Calculate Tum Tum Foods Ltd (ITFL) cost per 1kg pack of baked luncheon under the existing absorption costing system. (3 marks)

2. Suggest three reasons why Yum Foods Ltd (YFL) may be able to sell its product at $8.50 over longer term [3 marks)

3. Calculate the cost per unit for TIFL's luncheons using activity-based costing 17 marks)

4. What target cost would TTEL have to set for its luncheons if it wished to match the YFL's price and maintain its existing markup? (3 marks)

5. By shat amount TIFL should decrease its cost to compete with YFL's pnce? 13 marks)

6. Identify four non-value-added activities from TIFL's bill of activities to produce luncheons. 12 marks)

7. Suggest two possible root cause cost drivers for each of the non value added activities identified in 161 above 14 marks)

Answer & Explanation Solved by verified expert

See Answer