Baldu Biru manufactures two musical instruments, clarinet and flute. A review of the company's accounting records revealed the direct cost per-unit and production volumes: Instrument Clarinet Instrument Flute 2,500 5,000 RM600 Production volume (units) Direct material Direct labour: 2 hours at RM150.00 3 hours at RM150.00 RM400 RM300 RM450 Manufacturing overhead is currently computed by spreading overhead of RM1,860,000 over 20,000 direct labour hours. Management is considering a shift to activity-based costing in an effort to improve the firm's competitive position, and the following data are gathered: Cost pool Amount (RM) Set up General factory Cost driver Number of setup Clarinet Flute Total 120 2,000 100 240,000 1,500,000 20 Direct labour hours Machine hours 500 1500 Machine 120,000 2,200 800 3,000 processing Baldu Biru determines selling prices by adding 30% to the products' total costs. Required: a. Compute the cost per-unit and selling price for the Clarinet and Flute based on the traditional approach. b. Compute the cost per-unit and selling price for the Clarinet and Flute based on the activity-based costing c. Traditional costing often claimed to cause product distortion and cross subsidization. Explain how the activity-based costing is a better alternative?
Baldu Biru manufactures two musical instruments, clarinet and flute. A review of the company's accounting records revealed the direct cost per-unit and production volumes: Instrument Clarinet Instrument Flute 2,500 5,000 RM600 Production volume (units) Direct material Direct labour: 2 hours at RM150.00 3 hours at RM150.00 RM400 RM300 RM450 Manufacturing overhead is currently computed by spreading overhead of RM1,860,000 over 20,000 direct labour hours. Management is considering a shift to activity-based costing in an effort to improve the firm's competitive position, and the following data are gathered: Cost pool Amount (RM) Set up General factory Cost driver Number of setup Clarinet Flute Total 120 2,000 100 240,000 1,500,000 20 Direct labour hours Machine hours 500 1500 Machine 120,000 2,200 800 3,000 processing Baldu Biru determines selling prices by adding 30% to the products' total costs. Required: a. Compute the cost per-unit and selling price for the Clarinet and Flute based on the traditional approach. b. Compute the cost per-unit and selling price for the Clarinet and Flute based on the activity-based costing c. Traditional costing often claimed to cause product distortion and cross subsidization. Explain how the activity-based costing is a better alternative?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
please answer in text
Transcribed Image Text:Baldu Biru manufactures two musical instruments, clarinet and flute. A review of the
company's accounting records revealed the direct cost per-unit and production volumes:
Production volume (units)
Direct material
Instrument Clarinet Instrument Flute
2,500
RM400
5,000
RM600
Direct labour:
2 hours at RM150.00
RM300
3 hours at RM150.00
RM450
Manufacturing overhead is currently computed by spreading overhead of RM1,860,000 over
20,000 direct labour hours. Management is considering a shift to activity-based costing in an
effort to improve the firm's competitive position, and the following data are gathered:
Cost pool Amount (RM)
Set up
General
factory
Machine
Cost driver
Number of setup
Clarinet
Flute
Total
100
240,000
1,500,000
120
2,000
20
Direct labour
500
1500
hours
120,000
Machine hours
2,200
800
3,000
processing
Baldu Biru determines selling prices by adding 30% to the products' total costs.
Required:
a. Compute the cost per-unit and selling price for the Clarinet and Flute based on the
traditional approach.
b. Compute the cost per-unit and selling price for the Clarinet and Flute based on the
activity-based costing
c. Traditional costing often claimed to cause product distortion and cross subsidization.
Explain how the activity-based costing is a better alternative?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education