Question

Robo Garage Pte Ltd manufactures mini robots: Kirobo and Robi. Kirobo, a robot astronaut, is more complex to manufacture as compared to Robi which is designed to converse with human.  The budgeted data for the next financial year is as follows:

	Kirobo	Robi
Production volume	1,000 units	8,000 units
Unit prime cost	$ 500	$ 200
Direct labour hours per unit	8	24
Manufacturing overhead is applied using direct labour hours.

The newly appointed Financial Controller suspects that the current overhead allocation method which is a traditional costing method, has resulted in inaccurate product cost for the two robots. As such, he would like to explore using Activity Based Costing (ABC) method. A breakdown of the manufacturing overhead costs by activity reveals the following:

Activity Cost Pool	Budgeted Cost $	Cost driver	Cost  Driver Volume
			Kirobo	Robi
Machine set-ups	100,000	Number of set-ups	160	40
Materials handling	1,220,000	Number of parts moved	12,000	8,000
Quality control	60,000	Number of inspection hours	500	1,000
Total	1,380,000

Required:(Round off your answers to two decimal places, where applicable.)

Determine the unit product cost for Kirobo and Robi using

current traditional costing method

Activity Based Costing method           

Show clearly the calculation for the predetermined overhead rate and activity rates.                                                                                                     

Answer 1

a) Traditional costing method :

Predetermine overhead rates = 1380000/200000 = 6.90 per labour hour

	Kirobo	Robi
Prime cost	500000	1600000
Manufacturing overhead	1000*8*6.9 = 55200	8000*24*6.9 = 1324800
Total product cost	555200	2924800
Unit	1000	8000
Unit product cost	555.20	365.60

b) Acitivity rates :

Activity cost pool	Budgeted cost	Cost driver	Activity rate	Kirobo	robi
Machine setups	100000	200 set up	500 per setup	80000	20000
Material handling	1220000	20000 moved	61 per move	732000	488000
Quality control	60000	1500 inspection hour	40 per inspection hour	20000	40000
Total manufacturing overhead				832000	548000
Prime cost				500000	1600000
Product cost				1332000	2148000
Units				1000	8000
Units product cost				1332	268.50