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ASSIGNMENT

Accounting Manager Decision Making

Submitted by: Ashish Lakhani
Submitted to: Tariq Shameem

Case 5-35 | (a) | Stage 1: Allocation of S1 and S2 costs to production departments | | | | Department P1 | Department P2 | | | Directly traceable | $480,000 | $780,000 | | | S1 | 1,176,000 × = 420,000 | 1,176,000 × = 756,000 | | | | | | | | S2 | 1,120,000 × = 280,000 | 1,120,000 × = 840,000 | | | | | | | | Total support | $1,180,000 | $2,376,000 | | | | | | | | Direct Labour Hours (DLH) | 80, 000 | 120,000 | | | | | | | | Cost driver rate | $14.75 per DLH | $19.80 per DLH | | | | | |

| | Stage 2: Allocation of P1 and P2 costs to products | | | | Product R361 | Product R572 | | | P1 | | | | | | | | | | P2 | | | | | | | | | | | | |

Product costing

| | | Product R361 | Product R572 | | | Direct materials | | | | | | | | | | Direct labor: P1 | | | | | | | | | | Direct labor: P2 | | | | | | | | | | Support | | | | | | | | | | Total cost | | | | | | | | | | Total units | 500,000 | 400,000 | | | | | | | | Unit cost | $17.0132 | $16.0235 | | | | | | | | Sales price | | | | | | | | | | Gross margin | $1.9868 | $3.9765 | | | | | | | | Gross margin in percentage | 10.4600% | 19.88% | | | | | |

(b) Let x denote the number of hours required for each R361 setup. Then the number of hours required for each R572 setup = 1.5x.

| | | R361 | R572 | | | | | | | | Number of setups | 2,000 | 4,000 | | | | | | | | Setup hours | 2,000x | 6,000x = 4,000 1.5x | | | | | | | | | (25%) | (75%) | | | | | |

| | | Number of transactions | | | | Activity Cost Drivers | Traceable Costs | Total | R361 | R572 | Activity Cost Driver Rate | | | P1-DLH |

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