Question

ABC ltd is a circuit board producer and produces two products, L1 & L2. The company...

ABC ltd is a circuit board producer and produces two products, L1 & L2. The company currently uses traditional costing system for making business decisions. However, recently the company is considering a move towards the Activity-Based Costing (ABC) system. As one of the company’s accountant’s you have been asked to prepare a statement comparing both the costing methods for the next company board meeting. Your supervisor has given you the following quarterly data: -

Total Indirect Costs for the quarter:

Assembly RM630,000

Soldering RM270,000

Inspection RM160,000

Direct costs (materials, labour) L1 : RM162,400. L2 : RM178,240

Machine hours (assembly) L1: 480 . L2 : 1,080

Number of units produced (soldering) L1 : 6,000 . L2 : 4,000

Testing hours (inspection) L1 : 6,000 . L2 : 8,000

In the traditional system, the Inspection department (support department) and its costs were shared by the Assembly and Soldering departments (production departments) i.e. 60% cost allocated to Assembly and 40% cost allocated to Soldering. Under the ABC system, calculate the following:

Manufacturing cost per unit for L1 and L2

L1 RM97.607; L2 RM203.614

L1 RM203.614; L2 RM97.697

L1 RM203.456; L2 RM97.80

L1 RM97.80; L2 RM203.456

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