Reference no: EM132323779

Question

Wonderful Sea Co. manufactures various categories of display items for home and office decoration. The company has budgeted the following costs and activities for the month of July.

Overhead costs            $           Total activity driver

Machining              300,000       10,000 machine hours

Mixing                   110,000       40 set ups

Inspection             8,000          320 inspection hours
 
Total                   418,000

One of the Wonderful Sea's products was concrete seahorse and during the month of July, 2,500 units of concrete seahorses were produced. This product in July production requires 1,250 machine hours, 5 set ups of mixing equipment and 50 inspection hours. Each unit of concrete seahorse needs 3 kilograms of direct material and 10 labour hours to produce. One kilogram of material costs $5 and labourers are paid $6 for an hour work.

Required: with solutions method

(a) Calculate cost per unit of concrete seahorse if machine hour is used as the cost driver foroverheads allocation.

(b) Calculate cost per unit of concrete seahorse using activity based costing system.

(c) Explain two (2) situations where Wonderful Sea Co. should use activity based costing system to cost their products.

(d) Explain to director of Wonderful Sea Co. two (2) cost estimation techniques that they can use for future budget setting.