Reference no: EM132536458

Algebra Berhad is involved in the manufacturing of two products, Diamond and Pearl. The information on the two products is given in Table Q1 (i). Table Q1(i): General financial information Diamond Pearl 15.000 units Expected production Direct material cost per unit 5,000 units RM40 RM52 Labour hours 60,000 hours 10,000 hours Direct Labour per unit RM40 RM80 Direct labour rate per unit RM20 RM20 The estimated overhead for the coming year is RM1,050,000. At present, Algebra Berhad absorbs its overhead on the basis of direct labour hours. Recently the company's products are being challenged by a new competitor offering lower prices, as the company's new management accountant, you have been asked to look into this matter. After doing a cost analysis, you propose to the management to adopt the activity-based costing method in absorbing overhead to production. From your study, the estimated overheads could be re analysed into cost pools as in Table Q1(ii Table Q1(ii): Cost pools and cost driver information Cost pool Order processing Machine processing Product inspection Cost driver volumes for each product

Cost driver Total cost (RM) 275,000

Customer orders

Machine hours worked 632,000

Inspection hours 143,000

Cost drivers Diamond Pearl Customer orders 525 475

Machine hours worked 37,600 42,400 17,200

Inspection hours 4,800

Question 1: Determine the overhead allocation rate using traditional system.

Question 2: Calculate the total cost per unit for each product using traditional method.

Question 3: Calculate the total cost per unit for each product using activity-based costing method.

Question 4: Explain TWO (2) reasons for using activity-based costing method.