Question 2 (Modified past mid-session exam question) Zaptronics Ltd specialises
ID: 2554986 • Letter: Q
Question
Question 2 (Modified past mid-session exam question) Zaptronics Ltd specialises in producing projectors for universities and TAFE colleges. It produces three types of projectors: V100 (a small projector for tutorial rooms), V200 (a large projector for lecture theatres) and V300 (a portable projector). All of Zaptronics Ltd's customers require limited marketing or customer support Zaptronics Ltd is currently using a volume based costing system. Its CFO Mr Adam Summers noticed that manufacturing overhead costs comprise more than half of Zaptronics Ltd's total manufacturing costs. As a result, he is contemplating changing from the current VBC system to an Activity Based Costing (ABC) system The following information was collected for the month of June 2016: The VBC information relating to the projectors are as follow: V100 V200 V300 Total Number of projectors produced 200 150 150 500 89,500 50,000 66,88050,160 50,160167,200 $120,880$92,160 $93,660 $306,700 34,000 20,000 27,000 15,000 28,500 15,000 Direct Materials Direct Labour Manufacturing overhead (MOH) cost Total manufacturing cost Cost per projector $604.40$614.40 $624.40 Sales price per projector (@50% mark-up of cost) $906.60 $921.60 $936.60 "MOH costs are allocated on the basis of number projectors produced
Explanation / Answer
Resource
Cost
quantity of Resource driver
Cost per driver
A
B
C
D = B/C
Salaries
$ 88,000
22
$ 4,000
per employee
assembly Machine Depreciation
$ 80,000
8000
$ 10
per assembly hour
Marketing
$ 4,000
4
$ 1,000
per advertisement
Packing Machine Depreciation
$ 3,200
400
$ 8
per packing hour
Activities
Resources Consumed
Cost of Activity
Setup Machines
4 Employees
$ 16,000
=4*4000
Assembly
8000 Assembly Hours
$ 80,000
=8000*10
15 Employees
$ 60,000
$ 140,000
=15*4000
Packing
2 Employees
$ 8,000
=2*4000
400 Packing Hours
$ 3,200
$ 11,200
=400*8
Advertising
4 advertisements
$ 4,000
=4*1000
1 Employee
$ 4,000
$ 8,000
=1*4000
Activity Drivers Related to Production
quantity of Activity Drivers
v100
V200
V300
Total
Total Activity Cost
Activity Cost per Activity Driver
Machine Setups
8
6
6
20
$ 16,000
$ 800
Projectors Produced
200
150
150
500
$ 140,000
$ 280
Packing Batches
4
3
3
10
$ 11,200
$ 1,120
Advertisements
2
1
1
4
$ 8,000
$ 2,000
Cost Sheet
Direct Material
$ 34,000
$ 27,000
$ 28,500
$ 89,500
Direct Labour
$ 20,000
$ 15,000
$ 15,000
$ 50,000
Machine Setup Cost @ $800
$ 6,400
$ 4,800
$ 4,800
$ 16,000
Assembly Cost @ $280
$ 56,000
$ 42,000
$ 42,000
$ 140,000
Packing Costs @ $1,120
$ 4,480
$ 3,360
$ 3,360
$ 11,200
Advertisement Costs @ $2,000
$ 4,000
$ 2,000
$ 2,000
$ 8,000
Total Cost
$ 124,880
$ 94,160
$ 95,660
$ 314,700
Cost per projector
$ 624.40
$ 627.73
$ 637.73
act 1. The Activity Based Costing should be applied by the management because it enables the management to determine more precise cost of each type of projector based on the activities used for the manufacturing. As given above the manufacturing overheads are precisely divided and allocated to projectors on the basis of packing, assembling, machine set up and advertisements used by each of the type of the projector.
Fact 2. The selling price setup as 50% markup of the costs based on the traditional methos may lead to underpricing or overpricing of the projectors.
Resource
Cost
quantity of Resource driver
Cost per driver
A
B
C
D = B/C
Salaries
$ 88,000
22
$ 4,000
per employee
assembly Machine Depreciation
$ 80,000
8000
$ 10
per assembly hour
Marketing
$ 4,000
4
$ 1,000
per advertisement
Packing Machine Depreciation
$ 3,200
400
$ 8
per packing hour
Activities
Resources Consumed
Cost of Activity
Setup Machines
4 Employees
$ 16,000
=4*4000
Assembly
8000 Assembly Hours
$ 80,000
=8000*10
15 Employees
$ 60,000
$ 140,000
=15*4000
Packing
2 Employees
$ 8,000
=2*4000
400 Packing Hours
$ 3,200
$ 11,200
=400*8
Advertising
4 advertisements
$ 4,000
=4*1000
1 Employee
$ 4,000
$ 8,000
=1*4000
Activity Drivers Related to Production
quantity of Activity Drivers
v100
V200
V300
Total
Total Activity Cost
Activity Cost per Activity Driver
Machine Setups
8
6
6
20
$ 16,000
$ 800
Projectors Produced
200
150
150
500
$ 140,000
$ 280
Packing Batches
4
3
3
10
$ 11,200
$ 1,120
Advertisements
2
1
1
4
$ 8,000
$ 2,000
Cost Sheet
Direct Material
$ 34,000
$ 27,000
$ 28,500
$ 89,500
Direct Labour
$ 20,000
$ 15,000
$ 15,000
$ 50,000
Machine Setup Cost @ $800
$ 6,400
$ 4,800
$ 4,800
$ 16,000
Assembly Cost @ $280
$ 56,000
$ 42,000
$ 42,000
$ 140,000
Packing Costs @ $1,120
$ 4,480
$ 3,360
$ 3,360
$ 11,200
Advertisement Costs @ $2,000
$ 4,000
$ 2,000
$ 2,000
$ 8,000
Total Cost
$ 124,880
$ 94,160
$ 95,660
$ 314,700
Cost per projector
$ 624.40
$ 627.73
$ 637.73
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