Learn ABC - Malu apa bossku!

KaplaBossKita a company produces two spare parts namely Bossku and Bosskau. The company currently allocated the overhead based on direct labour hours. It is recommended that the company use activity-based costing to charge overhead to products.

The company expects to produce 4,500 “Bossku” and 2,000 “Bosskau” in 2019. Each “Bossku” requires two direct labour hours to produce and each “Bosskau” requires one-half hour to produce. The direct material and direct labour costs included in the two products are as follows:

Item	Bossku	Bosskau
Direct material (per unit)	RM28	RM16
Direct labour (per unit)	RM18	RM5

Budgeted total factory overhead data for 2019.

Activity	Budgeted overhead RM	Estimated volume
Production setups	RM90,000	20 setups
Material handling	RM60,000	5,000kg
Packaging and shipping	RM150,000	6,000 boxes
Total factory overhead	RM300,000

Based on an analysis of the three overhead activities, it was estimated that the two products would require the activities as follows in 2019:

Activity	Bossku	Bosskau	Overall Totals
Production setups	5 setups	15 setups	20 setups
Material handling	1,000kg	4,000kg	5,000kg
Packaging and shipping	4,000 boxes	2,000 boxes	6,000 boxes

Required:

   Calculate the cost of each product using total overhead based on direct labour hours.      

   Calculate the activity cost rates for Setups, Material handling and Packaging and shipping. 

   Cost out the two products using an activity-based costing system. 

   State the advantages and disadvantage of Activity Based Costing for the above situation.