Assignment brief:
• Explain through a real world example of how accounting and budgeting information can contribute to, and support, effective strategic decision-making;
• Raffles & Co produces three products, A, B and C. All three products use the same material. At present, it is using traditional method to allocate overheads to its products.
The company recently hires you as its Cost Accountant and the management is considering an activity based costing system in order to improve profitability.
Information of the three products for last year is presented in the following table.
|
|
A
|
B
|
C
|
|
Production and sales volumes (units)
|
15,000
|
12,000
|
18,000
|
|
Selling price per unit
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$ 7.50
|
$ 12.00
|
$ 13.00
|
|
Raw material usage (kg) per unit
|
2
|
3
|
4
|
|
Direct labor hours per unit
|
0.10
|
0.15
|
0.20
|
|
Machine hours per unit
|
0.50
|
0.7
|
0.9
|
|
Number of production runs per annum
|
16
|
12
|
8
|
|
Number of purchase orders per annum
|
24
|
28
|
42
|
|
Number deliveries to retailers per annum
|
48
|
30
|
62
|
The price for raw materials remained constant throughout the year at $1.20 per kg. The direct labor cost was $14.80 per hour. The annual overhead costs were as follows:
Machine Set-up costs $ 26,550.00
Machine running costs $ 66,400.00
Procurement costs $ 48,000.00
Delivery costs $ 54,320.00
Based on the above information,
• Calculate the full cost per unit for each product under traditional costing method, using direct labor hours as the basis for appointment.
• Calculate the full cost per unit for each product using activity based costing.
• Based on your above calculation, explain and discuss how activity based costing may help Raffles & Co to improve the profitability of each product and why activity-based costing may be preferred to traditional absorption costing in the modern manufacturing environment.
Report Requirement
1. Word length of 1500-2000 words (includes Introduction - Conclusion/Recommendation) Papers exceed the maximum word length will receive a 10% penalty.
2. Citations: minimum of three sources. Peer-review are the strongest, web pages are the weakest.
3. APA citation and referencing. See https://owl.english.purdue.edu/owl/resouce/560/01/
4. Order of pages:
a) Cover Page (provided by the lecturer)
b) Executive Summary
c) Table of Contents
d) Introduction
e) Main Body ( use information titles - do not title ‘Main Body'
f) Conclusions
g) Recommendations
h) Reference List
i) Appendix Items
5. Paper submitted with a Similarity Index greater than 20% in total and greater than 6% from a single source will result in a zero (0) mark. (use page turnitin to check the similarity).