QUESTION 2 40 marks Quintric Ltd. produces two types of fine wool coats that are classified as Executive and Elite coat. Quintricâ€™s currently using a simple job-costing system that has two direct-cost categories (direct materials and direct labour) and a single indirect-cost pool with indirect cost allocation based on machine-hours. For 2016, Quintricâ€™s budget includes estimated manufacturing overhead costs of $200,000 and 8,000 machine hours. Quintric collected the following information for 2016. Executive coat Elite coat Number of coats 400 coats 200 coats Machine hours per coat 10 10 Price per coat $700 $1,200 Cost of materials per coat $200 $ 300 Direct labour costs per coat $180 $ 410 Required: (a) (b) (C) Using the simple costing system, calculate the product cost per unit for the Executive and (10 marks) Elite coat. Quintric Ltd. incurred actual total manufacturing costs of $202,000 and 8,000 total (5 marks) machine hours during the year. Determine the amount of under applied or over applied manufacturing overhead for the period and prepare a journal entry to close any balance in the manufacturing overhead account assuming the under/over applied overhead amount is insignificant. Quintric is concerned about the accuracy of the costs assigned to the Executive and Elite coat and therefore is planning to implement an activity-based costing (ABC) system. Quintricâ€™s ABC system would have the same direct-cost categories as its simple costing system. However, instead of a single indirect-cost pool there would now be three categories (design, setup and printing machine operations) for assigning indirect costs. To see how activity-based costing would affect the costs of the Executive coat or Elite coat, the following information is collected for an analysis. Activity Costs Cost Allocation Quantity of Cost Allocation Base Base Executive coat Elite coat Design $80,000 Design hours 800 design hours 3,200 design hours Setups 45,000 Number of setups 10 setups 40 setups Machine 75,000 Machine hours 3,000 machine hours 2,000 machine hours operations $200,000 Using the activity based costing system, calculate the estimated product cost per unit for (15 marks) the Executive and Elite coat. Compare the costs of the Executive coatand Elite coatunder the simple and activity (10 marks) based costing systems. Explain why the simple and activity based costing systems differ in the cost of the Executive and Elite coat.
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