Calculate the costs of the refrigerator models using activity-based costing (ABC) based on the provided data.

Steps to Solve

1. Calculate Total Direct Labour Cost

To find the total direct labour cost, we first determine the total direct labour hours for each model.

For Lo:

• Direct labour hours per unit = 0.5
• Budget production (units) = 20,000
• Total direct labour hours for Lo = $0.5 \times 20,000 = 10,000$ hours

For Mid:

• Direct labour hours per unit = 1
• Budget production (units) = 1,000
• Total direct labour hours for Mid = $1 \times 1,000 = 1,000$ hours

For Hi:

• Direct labour hours per unit = 1
• Budget production (units) = 10,000
• Total direct labour hours for Hi = $1 \times 10,000 = 10,000$ hours

Now sum the direct labour hours: $$ \text{Total direct labour hours} = 10,000 + 1,000 + 10,000 = 21,000 \text{ hours} $$

Now, calculate the total direct labour cost using the rate of RMB 8/hour: $$ \text{Total direct labour cost} = 21,000 \times 8 = RMB 168,000 $$

2. Calculate Total Direct Machine Cost

Next, we calculate the total direct machine cost using the machine hours for each model.

For Lo:

• Direct machine hours per unit = 0.2
• Total direct machine hours for Lo = $0.2 \times 20,000 = 4,000$ hours

For Mid:

• Direct machine hours per unit = 0.6
• Total direct machine hours for Mid = $0.6 \times 1,000 = 600$ hours

For Hi:

• Direct machine hours per unit = 0.5
• Total direct machine hours for Hi = $0.5 \times 10,000 = 5,000$ hours

Now sum the direct machine hours: $$ \text{Total direct machine hours} = 4,000 + 600 + 5,000 = 9,600 \text{ hours} $$

Now, calculate the total direct machine cost using the rate of RMB 5/hour: $$ \text{Total direct machine cost} = 9,600 \times 5 = RMB 48,000 $$

3. Calculate Total Overheads

The total budgeted overheads for the business is given as RMB 4,410,000. This includes both direct labour and direct machine costs.

4. Calculate Total Cost for each Model

We now compute the total cost for each model (Lo, Mid, Hi) including material cost, direct labour cost, and direct machine cost.

For Lo:

• Material cost per unit = RMB 25
• Total material cost = $25 \times 20,000 = RMB 500,000$
• Model cost = Material Cost + Direct Labour Cost + Direct Machine Cost

For Mid:

• Material cost per unit = RMB 62.5
• Total material cost = $62.5 \times 1,000 = RMB 62,500$

For Hi:

• Material cost per unit = RMB 105
• Total material cost = $105 \times 10,000 = RMB 1,050,000$

Now, calculate total costs for each model:

• Lo Total Cost = $500,000 + (0.5 \times 8 \times 20,000) + (0.2 \times 5 \times 20,000)$
• Mid Total Cost = $62,500 + (1 \times 8 \times 1,000) + (0.6 \times 5 \times 1,000)$
• Hi Total Cost = $1,050,000 + (1 \times 8 \times 10,000) + (0.5 \times 5 \times 10,000)$

5. Summarize Total Costs

Finally, sum all costs to provide insights into the financial planning for the models and deduce which model contributes to the costs effectively.