Bradford Watch Company manufactures luxury and sports watches both for male and female customers. The luxury watches are famous for the high-end design materials while the sports watches are popular for their utilities.The company uses a traditional costing system in assigning overhead costs to the products on the basis of direct labour hours. However, the Production Manager seeks to replace the existing system with the Activity-based Costing (ABC) system to keep control over costs and offer more competitive pricing. After reviewing the existing costing system and interviewing the company’s personnel in relevant departments, the accountant compiled a report highlighting resources and costs involved in manufacturing watches per month: The following table lists out the overhead cost: Activity cost pool Overhead cost (£) Additional Notes Job-order set up 33,000 Procurement and placement 360,000 Installation of winding system 195,000 An auto winding system is fitted with every watch Quality inspection (machine) 60,000 Quality inspection (manual) 21,000 Finishing 140,000 Hand-made finishing Packaging and delivery 44,250 The company packages and delivers watches in batches containing 10 watches per batch. On an average, the packaging and delivery cost is the same for all batches (10 watches= 1 batch) Factory cleaning services 30,000 A cost that is not consumed by any of the products The company pays £8 per direct labour hour The following table lists out some key figures for this firm: Description Quantity Number of watches 1,500 units Direct labour hours 7,000 hours Machine hours 14,000 hours Number of job orders 110 Inspection hours using machine 800 hours Number of cycles for procurement and placement 2,400 times Required: a) Calculate the manufacturing overhead absorption rate using the traditional absorption costing system b) What would be the sales price of the following two products using the ABC system if the company adds 30% mark-up on total allocated costs? Model Luxury Sports Category Female Male Job order number LF-340 & LF-341 SM-119 & SM-120 Number of units 30 50 Direct materials (£ per unit) 85 55 Direct labour hours 200 250 Machine hours 225 750 Inspection hours using machine 12 40 Number of cycles for procurement and placement 50 80

Bradford Watch Company manufactures luxury and sports watches both for male and female customers. The luxury watches are famous for the high-end design materials while the sports watches are popular...

Bradford Watch Company manufactures luxury and sports watches both for male and female customers. The luxury watches are famous for the high-end design materials while the sports watches are popular for their utilities.

The company uses a traditional costing system in assigning overhead costs to the products on the basis of direct labour hours. However, the Production Manager seeks to replace the existing system with the Activity-based Costing (ABC) system to keep control over costs and offer more competitive pricing. After reviewing the existing costing system and interviewing the company’s personnel in relevant departments, the accountant compiled a report highlighting resources and costs involved in manufacturing watches per month:

The following table lists out the overhead cost:

Activity cost pool	Overhead cost (£)	Additional Notes
Job-order set up	33,000
Procurement and placement	360,000
Installation of winding system	195,000	An auto winding system is fitted with every watch
Quality inspection (machine)	60,000
Quality inspection (manual)	21,000
Finishing	140,000	Hand-made finishing
Packaging and delivery	44,250	The company packages and delivers watches in batches containing 10 watches per batch. On an average, the packaging and delivery cost is the same for all batches (10 watches= 1 batch)
Factory cleaning services	30,000	A cost that is not consumed by any of the products

The company pays £8 per direct labour hour

The following table lists out some key figures for this firm:

*Description*	*Quantity*
Number of watches	1,500 units
Direct labour hours	7,000 hours
Machine hours	14,000 hours
Number of job orders	110
Inspection hours using machine	800 hours
Number of cycles for procurement and placement	2,400 times

Required:

a) Calculate the manufacturing overhead absorption rate using the traditional absorption costing system

b) What would be the sales price of the following two products using the ABC system if the company adds 30% mark-up on total allocated costs?

Model	Luxury	Sports
Category	Female	Male
Job order number	LF-340 & LF-341	SM-119 & SM-120
Number of units	30	50
Direct materials (£ per unit)	85	55
Direct labour hours	200	250
Machine hours	225	750
Inspection hours using machine	12	40
Number of cycles for procurement and placement	50	80

Jun 01, 2022

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