Systems Implementation

Question 1

Gadgets Manufacturing manufactures two models of Dining Table and Chair Set: Designer and Supreme. All Support Overhead costs are allocated to both models on the basis of direct labour (DL) dollars/cost. For 2018, Gadgets’ books reveal the following pieces of information:

Screenshot from 2018-10-01 16-24-31

Gadgets recently automated part of the procedure for the Designer model with an aim to further improve the quality of the Designer line. The company management proposed that the company should evaluate as to whether ABC system would be better for the company to implement. She thinks that ABC system would help the company make more informed decisions on product mix and strategy decisions. Gadgets books reveal the following Activity-Based information:

Screenshot from 2018-10-01 16-25-05

Required:

A. (2 marks – 1 marks each) Under the current costing procedures, how would you work out:

1. the per unit manufacturing cost for each model of the Dining Table and Chair Set?

2. the profit per unit for each model of the Dining Table and Chair Set?

B. (1 marks) Under the current costing procedures, the Support Overhead costs per unit for the Designer model are less ($181 per unit) compared to those of the Supreme model ($221 per unit). What do you see as the most likely reason for the difference?

C. As part of the company’s evaluation of the ABC system implementation, work out: (11 marks: 3 marksfor ‘1’, 6 marks for ‘2’, and 2 marks for ‘3’)

1. the cost-driver rate for each of the three activities, listed above.

2. The ABC system-based per unit overhead cost for each model of the product.

3. The ABC system-based per unit total cost for each model of the product.

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