In: Accounting
Part A
Hardwood Limited has an activity-based costing system with three activity cost pools: Processing, Setting Up, and Other. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company's costs and activity-based costing system appear below:
Activity cost pools:
Processing $12,200
Setting up $25,100
Other $17,700
MHs Batches
Product Red 2,400 700
Product Blue 17,600 300
Total
20,000
1,000
Product Red Product Blue
Sales (total) $135,700 $98,000
Direct materials (total) $61,700 $31,000
Direct labour
(total)
$52,200
$45,800
Determine the product margins for each product using activity-based costing. Show your calculations.
Part B
At a recent staff meeting, Daniel Hamburg – the production manager – raised concerns that John Healy – the newly recruited management accountant – is not considering all manufacturing costs while calculating product costs under the activity-based costing system. While John was attempting to address Daniel’s concern during the meeting, Tang Chu – the CEO – stopped him as the meeting had to finish soon. However, Tang told John to prepare a report addressing Daniel’s concern, which needs to be submitted before the next meeting. Imagine yourself as John and prepare the report.
[Maximum word limit: 240 words]