Shun Electronics Company is a medium-sized firm with in the Malaysian electronics industry. Currently there are two operating divisions, the KB Monitor division which manufactures computer monitors, and the KL Radio division which makes radios.
For this case, we will be presenting the side from the KL Radio division. The KL Radio division currently makes two basic radios- a shelf model and a portable model. Each of these models is available in three different versions; a bathroom shower version, a 1950’s metal style cabinet version, and a wooden cabinet version. Altogether there are 6 radios being produced at the company.
The current production process can be seen in three departments, assembly, fabrication and finished goods departments. All three have their own separate functions where the radios are prepped for assembly and testing. Only at the fabrication department is the point where the radios can become separated into their different version and model. The finished goods department gives a final testing and ships the radios out to their intended locations.
Up to this point, the KL Radio Division uses a standard cost system, which allows for a standard product cost for each of the radios. This cost uses direct materials and direct labour costs per radio that is based on standard qualities, expected material costs, and labour cost. All costs are assumed at a normal production volume. ISSUE
For many years the company has been using standard cost system in which a standard product cost was computed for each of the six radios on divisional bases, divisions were cost pools used to allocate indirect cost to each type of radio. The budgeted direct material and direct labor costs per radio are based on standard quantities and hours and expected material costs and labor rates, and a standard overhead cost allocation rate is applied. The percentage used for the overhead rate was derived from the expected relationship between budgeted...