Expert Answer :This mini case related to ABC costing system-Cambd

Solved by verified expert :· “Number of products produced” as the allocation base (i.e. allocation is on a per unit basis) for these overhead costs.· Below is the reviewed budgeted conversion costs (all costs other than direct material) incurred over the year and compiled the following analysis.COST SYSTEM REVIEWAs a first step, Monnie identified costs by category and recommended relevant resource drivers. This information is contained in Table 1 below. TABLE 1 Costs and Resource Drivers 2014Cost Category$ CostResource DriverWages300,000Number of EmployeesBuilding costs80,000Floor SpaceDepreciation100,000Machine HoursIndirect Materials50,000Direct Labour HoursEnergy400,000Kilowatt Hours UsedOther20,000Number of EmployeesTotal Conversion Costs$950,000Next Monnie listed the responsibility centres within the company and defined the resource usage of each centre. This information is contained in Table 2.TABLE 2Resource Drivers Consumed by Responsibility Centres – 2014ResponsibilityNumber ofSquareMachineDirectKilowattsCentreEmployeesMetersHoursLabourHoursHoursProduct development52000100Sales and Dispatch105000150Mixing155001,0005010,000Filling201,0003,00010010,000Baking155005,000100200,000Packaging & warehousing201,00050015030,000Administration101,000500500Corporate Management53000250Total Quantity ofResource Driver1005,00010,000500250,000Monnie also produced a comprehensive list of activities performed in the business, then identified a driver for each activity. Tables 3 and 4 provide the activity based data Monnie has developed.TABLE 3List of Activities for the Factory – 2014Activity$ CostActivity DriverPrepare Annual Accounts5,000None AvailableSenior Management Costs18,300None AvailableProcess Receivables15,000# InvoicesProcess Payables15,000# Purchase OrdersProgram Production28,000# Production SchedulesProcess Sales Orders20,000# Sales OrdersDispatch Sales Orders21,500# DispatchesDevelop and Test Products20,200# New ProductsSet up Scales?# BatchesWeigh Ingredients?# BatchesLoad Mixers?# BatchesOperate Mixers?# KilogramsClean Mixers?# BatchesMove Mixture to Filling?# KilogramsClean Trays20,000# TraysAdd Ingredients92,000# Packets of Cakes /PastriesFill trays16,000# Packets of Cakes /PastriesMove to Baking8,000# TraysSet up Ovens50,000# BatchesBake Cakes/Pastries346,000# BatchesMove to Packing40,000# TraysPack Cakes/Pastries80,000# Packets of Cakes /PastriesInspect Pastries2,500# PastriesWarehousing65,500# Packets of Cakes /Pastries950,000TABLE 4Total Activity Driver Usage – 2014Invoices5,000Purchase Orders2,500Production Schedules1,000Sales Orders4,000Dispatches2,500New Products5Batches1,000Kilograms200,000Trays16,000Packets800,000Pastries50,000Unfortunately Monnie has yet to complete Table 3. As a result the table doesn’t include costs of the activities undertaken by the Mixing Centre. She did manage to collect some preliminary data relating to the Mixing Centre (See Table 5 and 6), which she was going to use to estimate costs of the Mixing Centre activities. However Table 5 is also incomplete.TABLE 5Mixing Centre Costs and Resource Drivers – 2014Cost Category$ CostResource DriverWages?Number of EmployeesBuilding Costs?Floor SpaceDepreciation?Machine HoursIndirect Materials?Direct Labour HoursEnergy?Kilowatt Hours UsedOther?Number of EmployeesTotal Conversion Costs?The following activities take place within the Mixing Centre. Table 6 lists these activities and provides estimates of each activity’s usage of Resource Drivers.TABLE 6Mixing Centre Activities and Resource Drivers Used – 2014ActivityNumber% of MixingMachine% of DirectKilowattofCentreHoursLabourHoursEmployeesFloorHoursSpaceSetup Scales250200Weigh Ingredients150100Load Mixers4100250Operate Mixers5501,0003010,000Clean Mixers2200100Move Mix to Fill110050Total15100%1,000100%10,000Finally Monnie defined the resources used in producing two of the products, Sponge Cakes and Danish Pastries. This information is contained in Table 7.TABLE 7Resource Use (and other relevant data) by Sample Products – 2014ActivitySpongeDanishDriverCakeProcess Receivables500150InvoicesProcess Payables200100Purchase OrdersProgram Production10050Production SchedulesProcess Sales Orders400100Sales OrdersDispatch Sales Orders500150DispatchesDevelop and Test Products0.050.2No. of New ProductsSetup Scales10050BatchesWeigh Ingredients10050BatchesLoad Mixers10050BatchesOperate Mixers30,0004,000KilogramsClean Mixers10050BatchesMove Mixture to Filling30,0004,000KilogramsClean Trays2,000400TraysAdd Ingredients100,00010,000Packets of Cakes/PastriesFill Trays100,00010,000Packets of Cakes/PastriesMove to Baking2,000400TraysSetup Ovens10050BatchesBake Cakes/Pastries10050BatchesMove to Packing2,000400TraysPack Cakes/Pastries100,00010,000Packets of Cakes/PastriesInspect Pastries010,000Packets of PastriesWarehousing100,00010,000Packets of Cakes/ PastriesOther Relevant DataSponge Cake DanishBatch Size1,000200Annual Volume (Packets)100,00010,000Direct Materials Cost$250,000$32,0001. Using the data provided in the case, calculations of the following:a. The missing cost amounts in Tables 5 and 3.b. Total product costs of the two types of cakes under;i) Cambden Cakes’ original costing system;ii) The revised ABC costing system.2. A DETAILED explanation of why the product costs you have calculated for each product in requirement 5- b) differ under;a. Cambden Cakes’ original costing system;b. The revised ABC costing system.3. A DETAILEDexplanation of the issues Cambden Cakes needs to consider ensuring a successful implementation of the ABC systemThis mini case related to ABC costing system.