Question

Oriental Motor Assembly Pte Ltd assembles three types of motorcycle at the same factory in Singapore: the 100cc Discover; the 250cc Pulsar and the 1000cc Punch. It sells the motorcycles throughout the world. In response to market pressures Oriental Motors has invested heavily in new manufacturing technology in recent years and, as a result, has significantly reduced the size of its workforce. Historically, the company has allocated all overhead costs using total direct labour hours, but is now considering introducing activity-based costing (ABC). Oriental Motors accountant has produced the following analysis. Discover Pulsar Punch Annual Output (Units) 2000 1600 400 Annual Direct labour hours 200,000 220,000 80,000 Selling price ($ per unit) 4,000 6,000 8,000 Raw material cost ($ per unit) 400 600 900 The three cost drivers that generate overheads are: • Deliveries to retailers: the number of deliveries of motorcycles to retail showrooms • Set-ups: the number of times the assembly line process is re-set to accommodate a production run of a different type of motorcycle. Purchase orders: the number of purchase orders. The annual cost driver volumes relating to each activity and for each type of motorcycle are as follows: Number of set-ups Discover Pulsar Punch Number of deliveries to retailers 100 80 70 35 40 25 Number of purchase orders 400 300 100 The annual overhead costs relating to these activities are as follows:

Answer 1

Requirement (a) os Existing Cost method. Labour hours. . Calculation of 아 tabora owerhead Rate. particular. Amoonl Based upon 1 Total overhead. estimated + Dilavery to retellers. Set up cost + purchase order Cost (A) 2,400,000 6.00p000 3600,000 $12.000000 Total Labour hours. 20000 Discover pulsar punch. 220 000 80000 (B) 500ooo hr overhead. Rate. (A/B) $ 24

Cost. (Total Cost on bails of LA) Existing penticular Discover pulsar punch. 800,000 Raw material (400x2000) (600 x 1600) (goox uoo) 960,00 360 voo Direct Labour Cost. 1000000 SX 250 000 SX 220 000 5X 80000 1100.000 yoooo 4800000 overhead. 24 x 200 000 24 X 210 VOD 24 X 80000 5 28 0000 1920 ovo Totel Cost. 6,600,000 7,34 0000 26800 8000 OVO Sales. (2000 x 4000 ) (1600 x 6000) 400 x 8060 9660 9,60 otro 3,200,000 profit 450,000 22600D S20070

Activity Based Casting method. Calculation of Activity Rate. particular Deliveries. Purches order set up Discover. 35 uvo Pulsar 300 Punch. 25 IVO Total. 250 110 800 Rake Deliveries to retallers = 2000 OUD 250 $9000 | Delivery) Set up Р Cost 6 DTO UVO 60000 | Set up. perchase order Cost 3600000 12 810 $ 4500 order

Activity based cost Cost Coverhead). Penticular . Discover pulsar punch. Delivery to Retairlers. 100x 9600 80 x 9600 70 x 9600 96000D 768 000 672000 2100,000 Set up Cost GOODOX 35 6000ox uo 6 OVOo 25 24ooooo 1500000 punchese order Cost usoox 400 USTO X 300 4500 * TUD 1800 Duo 1350000 uso DVD Total, 4,860000 458 OTO 2622000

lo Labour Activity Based Good profet Satement . particular Risoover pulsar punch. Sales. 8 ooo 000 960oooo 3200 000 y Malerical 800 000 960000 360 000 10,00.000 1100000 uroooo to overhead, 486 9ooo 4518000 2622,000 poufit / 1340,000 3022,000 Lous (182000

Report Dirceforers. The Costing method is wed for reduced the Cost of any produect orland Services or both! in the basis of above dala Can say that Activity based Casting is not Suntable for. 6 oriental Motors. because it - leads the funch bike to to low

In Activity based Casting System higher overheads Labour hown але then & Overhead. Rate Hiiy also Activity based casting derives Lower profit then Existing casting method. the my openion Existing Casting method Sintable oriental # we Can say that more Motors.

ii) . implication of Activity based Casting Son Suggestation above batis basis # # it leads cors of punch Bike higher overhead cost. . Lower profit #