Reference no: EM132590465

The following are annual budgeted amounts for a manufacturer for the coming year (a normal year):

Total budgeted annual overheads cost RM8,000,000

The activity pools which give rise to this annual overhead cost consist of:

1. Procurement activity pool RM1,500,000 (budgeted 150 purchase orders per year)
2. Production setup pool RM500,000 (budgeted 500 setups per year)
3. Production activity pool RM 4,000,000 (budgeted 400,000 DLH per year)
4. Marketing and Distribution activity pool RM2,000,000 (budgeted 20,000 salesman hours per year)

The company produces 10,000 units of Product A annually with the following unit costs: direct materials RM10, direct labour 2 hours.

Required:

Question a) Calculate the unit cost of Product A using volume based costing with DLH as the cost driver.

Question b) To produce and sell 10,000 units of Product A requires 10 purchase orders, 20 setups, 20,000 DLH, 200 salesman hours. Calculate the unit cost of Product A using Activity-Based Costing (ABC).

Question c) What are the benefits of using ABC?

Question d) What are the limitations of ABC?