Question

1. Rasolo Sand boards is a new company. Their Management Accountant Ms Nabila is keen to allocate as much of the MOH as possible to the products using ABC. In the course of doing so she has some queries which she needs you to help with.

Instructions

Answer the following questions. (5 marks each. Total 15 marks)

1. Would you advise her to allocate her paint shop cost on a per- piece basis, or based on surface area of sand board or DL hours? Why?
2. Would you advise her to allocate Management costs based on DM cost or DL costs or DL hours, or surface area of sand board? Why?
3. Should she allocate the total MOH over the installed capacity of Sand boards factory or over budgeted sales quantity planned for the period? Why?

Answer 1

Answer 1. She will allocate her paints of cost on Surface area basis because the activity driver for shop rent(Rental activity) is Surface area.

Answer 2. She will allocate Management cost on the basis of direct labour(DL) cost because the activity driver for Mangement cost is DL cost.

Answer 3. She will allocate the total MOH over the installed capacity of sand board factory because MOH cannot be related or allocated in terms of sales quantity planned for the period.