New Tyre Limited produces two types of tyres: standard and deluxe. It uses an activity-based costing (ABC) system and has three activity cost pools – machining, set-up, and packaging. The company’s overhead costs have been allocated to these cost pools as follows: Activity Cost Pools Machining ($)Set-up ($)Packaging ($)Total ($)126,00036,00078,000240,000 Costs in the Machining cost pool are allocated to products based on machine-hours; costs in the Set-up cost pool are allocated to products based on the number of batches; costs in the Packaging cost pool are allocated to products based on the number of shipments made. More information about the company’s products and costs are as follows: ProductMachine hoursBatchesShipmentsSales ($)Direct materials ($)Direct labour ($)Standard6,000500200700,000300,00090,000Deluxe4,0001,500400400,000150,00090,000Total10,0002,0006001,100,000450,000180,000 Required (show your calculations): Determine the profit margins for each product using activity-based costing. Type in answers to Question 1. a. (expand the space as needed) In a company meeting, the CFO commented that the design and implementation of an activity-based costing system is a costly endeavour. Many companies, especially those having limited resources, may not afford to run both traditional costing systems and activity-based costing systems. Then, the Marketing Director said that for companies with limited resources, a good option would be to replace their traditional costing system with an activity-based costing system. Do you agree or disagree with the Marketing Director? Explain your answers. [Maximum word limit: 250 words)

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Answered: New Tyre Limited produces two types of…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 5CE: Roberts Company produces two weed eaters: basic and advanced. The company has four activities:...

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New Tyre Limited produces two types of tyres: standard and deluxe. It uses an activity-based costing (ABC) system and has three activity cost pools – machining, set-up, and packaging. The company’s overhead costs have been allocated to these cost pools as follows:

Activity Cost Pools
Machining ($)	Set-up ($)	Packaging ($)	Total ($)
126,000	36,000	78,000	240,000

Costs in the Machining cost pool are allocated to products based on machine-hours; costs in the Set-up cost pool are allocated to products based on the number of batches; costs in the Packaging cost pool are allocated to products based on the number of shipments made.

More information about the company’s products and costs are as follows:

Product	Machine hours	Batches	Shipments	Sales ($)	Direct materials ($)	Direct labour ($)
Standard	6,000	500	200	700,000	300,000	90,000
Deluxe	4,000	1,500	400	400,000	150,000	90,000
Total	10,000	2,000	600	1,100,000	450,000	180,000

Required (show your calculations):

Determine the profit margins for each product using activity-based costing.

Type in answers to Question 1. a. (expand the space as needed)

In a company meeting, the CFO commented that the design and implementation of an activity-based costing system is a costly endeavour. Many companies, especially those having limited resources, may not afford to run both traditional costing systems and activity-based costing systems. Then, the Marketing Director said that for companies with limited resources, a good option would be to replace their traditional costing system with an activity-based costing system. Do you agree or disagree with the Marketing Director? Explain your answers. [Maximum word limit: 250 words)

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