(Solved by Humans)-Zammit Engineering manufactures a number of components that are sold to the electronics industry.

Question

(Contrasting Traditional and ABC Costing) Zammit Engineering manufactures a number of components that are sold to the electronics industry. Most of the manufacturing processes are common to the products, and the direct costs (raw materials and labour) are relatively small in relation to the overhead costs, a consequence of the investment in sophisticated technology to mass-produce large numbers of items. Zammit Engineering has divided its product range into four product groups: liggles, kicklets, zonnets, and carusos. Each product group is manufactured across three departments: Design, Machining, and Assembly. While design and assembly are labour-intensive, machining is capital-intensive. Overhead costs have been estimated for each of the cost centres as follows: Design Machining Assembly & Distribution Overhead costs $150,000 $250,000 $200,000 The number of direct labour hours (DLH) available for each department for the same period has been estimated as follows: Design Machining Assembly & Distribution Direct Labour hours 10,000 DLH 12,500 DLH 20,000 DLH The four product groups require direct labour hours in each of the departments as follows: Design DLH Machining DLH Assembly & Distribution DLH Total DLH Liggles 2,000 1,500 10,000 13,500 Kicklets 3,000 1,000 5,000 9,000 Zonnets 3,000 7,000 2,000 12,000 Carttsos 2,000 3,000 3,000 8,000 The Accounting Department recently carried out an activity-based costing exercise that has determined the following cost pool and cost driver information for the business: Cost pool Cost driver No. of drivers Order entry 100,000 Customer orders 5,000 Production 350,000 Production orders 2,000 Delivery 150,000 Delivery orders 5,000 Analysis has also shown the number of cost drivers associated with each product: Customer Orders Production Orders Delivery Orders Liggles 1,500 500 1,000 Kicldets 500 1,000 1,000 Zonnets 1,000 250 1,000 Carusos 2,000 250 2,000 Calculate the overhead per direct labour hour using a departmental rate. Calculate the total overhead cost allocated to each of the four product groups using the departmental rate. Calculate the costs per cost driver under activity-based costing. Calculate the total overhead cost allocated to each of the four product groups using activity-based costing. Comment on the approaches to costing and the differences between your answers to (b) and (d) above.