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Solution - CBL

# Solution - CBL - 1 Solution to Question 1(a The...

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Solution to Question 1(a) The predetermined overhead rate would be computed as follows: Cost of Manufacturing Overheads / Approximate Direct Labour hours 3,000,000 / 50,000 = 60 per direct labour hour Solution to Question 1(b) Under the current costing system, the cost per kilo of two products of the company is as follows: Mona Loa Malaysian Direct materials (given) 4.20 3.20 Direct labor (given) 0.30 0.30 Manufacturing overhead: 0.025 DLH × 60 per DLH 1.50 1.50 Total unit product cost \$6.00 \$5.00 Solution to Question 2(a) Let us first of all calculate the pre-determined overhead rate by the activity centre: Activity Center (a) Estimated Overhead Costs (b) Expected Activity (a) ÷ (b) Predetermined Overhead Rate Purchasing 513,000 1,710 orders 300 per order Material handling 720,000 1,800 setups 400 per setup Quality control 144,000 600 batches 240 per batch Roasting 961,000 96,100 hours 10 per hour Blending 402,000 33,500 hours 12 per hour Packaging 260,000 26,000 hours 10 per hour There are certain calculations in respect of the six activity centres which we need to do in order to ascertain the activity for each of them. These are done as follows: Number of Purchase Orders: Mona Loa: 100,000 kilos ÷ 20,000 kilos per order = 5 orders Malaysian: 2,000 kilos ÷ 500 kilos per order = 4 orders Number of Batches: Mona Loa: 100,000 kilos ÷ 10,000 kilos per batch = 10 batches Malaysian: 2,000 kilos ÷ 500 kilos per batch = 4 batches 1

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Number of Set-ups: Mona Loa: 10 batches × 3 setups per batch = 30 setups Malaysian: 4 batches × 3 setups per batch = 12 setups Roasting Hours: Mona Loa: 1 hour × (100,000 kilos ÷ 100 kilos) = 1,000 hours Malaysian: 1 hour × (2,000 kilos ÷ 100 kilos) = 20 hours Blending Hours: Mona Loa: 0.5 hour × (100,000 kilos ÷ 100 kilos) = 500 hours Malaysian: 0.5 hour × (2,000 kilos ÷ 100 kilos) = 10 hours Packaging Hours: Mona Loa: 0.1 hour × (100,000 kilos ÷ 100 kilos) = 100 hours Malaysian: 0.1 hour × (2,000 kilos ÷ 100 kilos) = 2 hours Now, we are in a position to ascertain the manufacturing overhead cost with the help of the activity figures so calculated as above: Mona Loa Malaysian Expected Activity Amount Expected Activity Amount Purchasing, at 300 per order 5 orders 1,500 4 orders 1,200 Material handling, at 400 per setup 30 setups 12,000 12 setups 4,800 Quality control, at 240 per batch 10 batches 2,400 4 batches 960 Roasting, at 10 per roasting hour 1,000 hours 10,000 20 hours 200 Blending, at 12 per blending hour 500 hours 6,000 10 hours 120 Packaging, at 10 per packaging hour 100 hours 1,000 2 hours 20 Total overhead cost 32,900 7,300 Solution to Question 2(b) According to the ABC, the manufacturing overhead cost per kilo is: Mona Loa Malaysian
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Solution - CBL - 1 Solution to Question 1(a The...

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