Please provide an answer for C and D 10 Puncak Bhd manufactures two models of shoes called CUTE and SWEET. The SWEET modelhas been in the market for many years. Due to the demands in the current fashion trend, thecompany introduced a new model called CUTE. Since the introduction of the CUTE model,the company's profits however, have been steadily declining in spite of increasing sales ofCUTE. The management of Puncak Bhd is worried and asks the cost accountant to do ananalysis on this problem. The cost accountant has identified that currently the companyis using direct labour hours to absorb manufacturing overheads. He prefers to adopt theactivity-based costing (ABC) approach. The following data relate to the two models for thecurrent period:CUTESWEETVolume (units)15,000120,000Selling price per unit (RM)350175Direct materials cost per unit (RM)154112Direct labour cost per unit (RM)168.Direct labour hours per unit (hours)1.60.8Total manufacturing overheads for the period are RM6,000,000. This total can be brokendown as follows:Manufacturing overheadsRMPurchasing252,000Rework648,000Product testing1,350,000Machine related costs3,750,000122Management AccountingABC system.Expected activityTotalSWEETActivity measuresCUTE15,0009,0006,000Number of tests1,200800400Number of purchase orders900400500Number of rework orders30,00050,000Machine hours20,000c. Compare your answers in (a) and (b) above and comment on your findings. Include inyour answer the possible reasons why the use of a single cost driver can distort theproduct costs.d. Why do you think the company's profits have steadily declined even though the sales ofCUTE have been increasing rapidly?

In traditional costing, overheads are allocated on the basis of direct labour hours. But in activity…

10 10 Puncak Bhd manufactures two models of shoes called CUTE and SWEET. The SWEET model has been in the market for many years. Due to the demands in the current fashion trend, the company introduced a new model called CUTE. Since the introduction of the CUTE model, the company's profits however, have been steadily declining in spite of increasing sales of CUTE. The management of Puncak Bhd is worried and asks the cost accountant to do an analysis on this problem. The cost accountant has identified that currently the company is using direct labour hours to absorb manufacturing overheads. He prefers to adopt the activity-based costing (ABC) approach. The following data relate to the two models for the current period: 122 Management Accounting Volume (units) Selling price per unit (RM) 175 Direct materials cost per unit (RM) 112 Direct labour cost per unit (RM) 8 Direct labour hours per unit (hours) 1.6 0.8 Total manufacturing overheads for the period are RM6,000,000. This total can be broken down as follows: Manufacturing overheads Purchasing Rework Product testing Machine related costs. Activity measures CUTE 6,000 CUTE 400 500 15,000 350 154 20,000 16 The cost accountant has also gathered the following additional information to implement ABC system. RM 252,000 648,000 1,350,000 3,750,000 SWEET Expected activity SWEET 9,000 800 400 120,000 Number of tests Number of purchase orders Number of rework orders Machine hours c. Compare your answers in (a) and (b) above and comment on your findings. Include in your answer the possible reasons why the use of a single cost driver can distort the product costs. 30,000 Total 15,000 1,200 900 50,000 d. Why do you think the company's profits have steadily declined even though the sales of CUTE have been increasing rapidly?

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter13: The Balanced Scorecard: Strategic-based Control

Section: Chapter Questions

Problem 13E: Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic...