2000 words + calculations
Word count: 2000 words approximately. In a report format.
Fantori Ltd has been in business for few years manufacturing sewing machines. It currently manufactures two models, the basic and advance. Last year, 2017 they made good profit and they were happy their business is running well. They are about to enter a new phase in their business, selling to an overseas buyer. However, they are a bit confused as to why the buyer is only interested to buy the advance model and not the basic or both. For product costing purposes the business uses the traditional costing system and machine hours to assign indirect cost to the sewing machines as they are fairly new in business and dont want to spend too much money to implement a more refined costing system-they are making profit, why change things?
However, the owner of the business, Tony Mans is a bit concerned as to the reason why the overseas buyer is not interested in buying the basic model and has appointed you to get to the bottom of this. He had been advised by fellow business buddies to implement Activity Based costing from the beginning but ignored it. He is thinking maybe its time.
The following information has been supplied to you regarding the business for the year 2017.
Basic Model
Units produced and sold: 1700
Direct material cost per unit: $350
Direct Labour cost per unit: $175
Advance Model
Units produced and sold: 1600
Direct material cost per unit: $580
Direct labour cost per unit: $280