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Subject:AccountingPrice: Bought3
A. Explain the concept of a budget (4 marks). Identify and briefly explain at least five advantages & three disadvantages of budgeting (16 marks) B. Clearly explain the master budget (4 marks) and show the characteristics of cach of its three components. (6 marks) Question 2 (35 marks) Planet9 Co., recently introduced a product called Vatik in order to complement its other products, Nova and Yeta. The accountant used to allocate the indirect cost according to the units produced. With the recent addition of an expanded computer system, Plante! would like to investigate the possibility of implementing ABC. Before making a final decision, management has come to you for advice. You collected the following information regarding manufacturing overhead: Allocation bases Table (1) Mfg. Overhead Set-up Ordering materials Handling materials Inspection Mfg. Overhead Costs S 50,000 $ 50,000 $ 8.000 $ 22,500 $130,500 Number of set-ups Number of material orders Number of times material was handled Number of inspection hours Table (2) Activity Total Number of set-ups Total Number of material orders Total Number of times material was handled Total Number of inspection hours Number of units produced Vatik 5 1 1 3 6,000 Products Nova 20 2 2 2 3,000 Yeta 55 7 17 10 1,000 Required: 1. Calculate the manufacturing overhead allocated for each product under ABC method. (20 marks) 2. Calculate the manufacturing overhead allocated for each product under the traditional costing method. (5 marks) 3. Prepare a table showing the cost distortion for each product under the two methods. (10 marks). Which of the two methods you would recommend and why?
