Question 2 (20 marks) 3 le le Colgate Factory Ltd. produces high quality camping equipment. It has a factory plant which

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Question 2 20 Marks 3 Le Le Colgate Factory Ltd Produces High Quality Camping Equipment It Has A Factory Plant Which 1 (101.38 KiB) Viewed 37 times

Question 2 (20 marks) 3 le le Colgate Factory Ltd. produces high quality camping equipment. It has a factory plant which produces premium and standard product. The factory uses traditional overhead allocation method applying a single predetermined plantwide rate based on direct labour hours (DLH). Over the past year, Colgate has produced 50,000 units for premium brand and 200,000 for standard brand. It has an estimated manufacturing overhead cost of $1,520,000 and estimated total direct labour hours of 400,000 DLHs. The unit costs of the two products are shown below: Per Unite Premium Standard Direct materials $400 $30 Direct labeure $24 $18 Direct labour hourse 2DLH 1.5DLH Colgate has recently investigated the possibility of using Activity Based Costing (ABC) Activit approach to determine product unit costs. The new experimental ABC system has three activity cost pools: (1) supporting direct labour: (2) setting up machines, and (3) parts administration. Basic data pertinent to these three activity cost pools are provided below: Est. Activity Activity Activity Cost Pools & activity measures Overhead Premium Standarde Total Cost (S) Supporting direct labour (DLH) 800,000€ 100,000 300,000€ 400,000 e Setting up machines (setups) 480,000+ 600- 200€ 800 de Part admin (part types) 240,000€ 1402 60€ 2004 Total manufacturing overhead 1,520,000 de Required: a) Prepare a product unit cost for each product based on the traditional method. (2.5 marks) b) Present in a table to compute the activity rate for each cost pool. (2 marks) c) Present in a table to show how overhead costs are assigned to each product based on ABC method. (8 marks) d) Prepare product unit cost for each product based on the ABC method. (2.5 marks) e) Explain the reasons for the difference of product cost in these two methods and its consequence (see a. and d). (2 marks) 1) Comment on the merits and pitfalls of ABC method. (3 marks)