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a single plant-wide overheads rate based on direct lab costing data are as follows: Lenovo Bhd manufactures two produ Power Y Power X 10,000 units 2,000 units RM80 Production quantity RM50 6 hours Direct materials per unit 4 hours Direct labour hours per unit (excluding set-up time) RM15 RM15 Direct labour rate per hour The manufacturing overheads budget is as follows: RM Overheads 675,000 Machine-related costs 270,000 Set-up and inspection Engineering 135,000 Plant-related costs 144,000 1,224,000 The selling price of the product is based on a markup of 20% on cost. Recently Pony Bhd, a competitor, produced a similar product to Power Y called Super Power Y. Pony Bhd sells the product at a price of RM290. The manager of Lenovo Bhd is wondering how Pony Bhd is able to sell the product at such a lower price. The manager of Lenovo Bhd has asked you, the management accountant to look into thi matter. You have decided that the company's traditional volume-based product costing system may be causing a distortion between the company's two products. After doing the analysis of costs, you have identified the following cost drivers for four activity cost pools. Activity cost poo Cost driver Machine-related costs Machine hours Set-up and inspection Number of production runs Engineering Engineering change orders Plant-related costs Sau

a single plant-wide overheads rate based on direct lab costing data are as follows: Lenovo Bhd manufactures two produ Power Y Power X 10,000 units 2,000 units RM80 Production quantity RM50 6 hours Direct materials per unit 4 hours Direct labour hours per unit (excluding set-up time) RM15 RM15 Direct labour rate per hour The manufacturing overheads budget is as follows: RM Overheads 675,000 Machine-related costs 270,000 Set-up and inspection Engineering 135,000 Plant-related costs 144,000 1,224,000 The selling price of the product is based on a markup of 20% on cost. Recently Pony Bhd, a competitor, produced a similar product to Power Y called Super Power Y. Pony Bhd sells the product at a price of RM290. The manager of Lenovo Bhd is wondering how Pony Bhd is able to sell the product at such a lower price. The manager of Lenovo Bhd has asked you, the management accountant to look into thi matter. You have decided that the company's traditional volume-based product costing system may be causing a distortion between the company's two products. After doing the analysis of costs, you have identified the following cost drivers for four activity cost pools. Activity cost poo Cost driver Machine-related costs Machine hours Set-up and inspection Number of production runs Engineering Engineering change orders Plant-related costs Sau

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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which product is overcost ana Power Y costing data are as follows: Power X 10,000 units 2,000 units RM80 Production quantity RM50 6 hours Direct materials per unit 4 hours Direct labour hours per unit (excluding set-up time) RM15 RM15 Direct labour rate per hour The manufacturing overheads budget is as follows: RM Overheads 675,000 Machine-related costs Set-up and inspection 270,000 Engineering 135,000 Plant-related costs 144,000 1,224,000 The selling price of the product is based on a markup of 20% on cost. Recently Pony Bhd, a competitor, produced a similar product to Power Y called Super Power Y. Pony Bhd sells the product at a price of RM290. The manager of Lenovo Bhd is wondering how Pony Bhd is able to sell the product at such a lower price. The manager of Lenovo Bhd has asked you, the management accountant to look into thi matter. You have decided that the company's traditional volume-based product costing system may be causing a distortion between the company's two products. After doing te analysis of costs, you have identified the following cost drivers for four activity cost pools Activity cost po. Cost driver Machine-related costs Machine hours Set-up and inspection Number of production runs Engineering Engineering change orders Plant-related costs Square footage of space Traditional Overheads versus Activity-based Costing 121 You have also gathered the following additional information: Fach Power X requires 5 machine hours, whereas each Power Y requires 1.5 machine hours. PowerXis manufactured in batches of 80 units per production run. PowerY is manufactured in batches of 200 units per production run. A total of 150 engineering change orders were received. 60% of the engineering activity, as measured in terms of change orders, relates to Power X. The plant has 2,000 square feet of space, 70% of which is used in the production of Power X. Required: a. Compute the unit selling price for both Power X and Power Y using: i. The current overheads absorption system, and ii. Activity-based costing system. b. Briefly explain how Lenovo Bhd's traditional volume based costing system distorts product costs.
Transcribed Image Text:which product is overcost ana Power Y costing data are as follows: Power X 10,000 units 2,000 units RM80 Production quantity RM50 6 hours Direct materials per unit 4 hours Direct labour hours per unit (excluding set-up time) RM15 RM15 Direct labour rate per hour The manufacturing overheads budget is as follows: RM Overheads 675,000 Machine-related costs Set-up and inspection 270,000 Engineering 135,000 Plant-related costs 144,000 1,224,000 The selling price of the product is based on a markup of 20% on cost. Recently Pony Bhd, a competitor, produced a similar product to Power Y called Super Power Y. Pony Bhd sells the product at a price of RM290. The manager of Lenovo Bhd is wondering how Pony Bhd is able to sell the product at such a lower price. The manager of Lenovo Bhd has asked you, the management accountant to look into thi matter. You have decided that the company's traditional volume-based product costing system may be causing a distortion between the company's two products. After doing te analysis of costs, you have identified the following cost drivers for four activity cost pools Activity cost po. Cost driver Machine-related costs Machine hours Set-up and inspection Number of production runs Engineering Engineering change orders Plant-related costs Square footage of space Traditional Overheads versus Activity-based Costing 121 You have also gathered the following additional information: Fach Power X requires 5 machine hours, whereas each Power Y requires 1.5 machine hours. PowerXis manufactured in batches of 80 units per production run. PowerY is manufactured in batches of 200 units per production run. A total of 150 engineering change orders were received. 60% of the engineering activity, as measured in terms of change orders, relates to Power X. The plant has 2,000 square feet of space, 70% of which is used in the production of Power X. Required: a. Compute the unit selling price for both Power X and Power Y using: i. The current overheads absorption system, and ii. Activity-based costing system. b. Briefly explain how Lenovo Bhd's traditional volume based costing system distorts product costs.
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