GROUP 7 CASE

VOLUME-BASED COSTING VS ACTIVITY-BASED COSTING

AND IMPACT ON PRICING DECISION
Honey Syrup Inc. produces 3 kinds of products: Honey Apple, Honey Orange, and Honey
Grape. The existing product cost calculation is as follows:

Honey Apple Honey Orange Honey Grape

Direct Raw Material Cost Rp 15.000.000 Rp 17.500.000 Rp 12.500.000
Direct Labor Costs 14.000.000 16.000.000 12.000.000
Factory Overhead Cost*):
4.000 DLH x Rp 3.000 12.000.000
6.000 DLH x Rp 3.000 18.000.000
3.000 DLH x Rp 3.000 9.000.000
Total costs Rp 41.000.000 Rp 51.500.000 Rp 33.500.000
Production 10.000 units 10.000 units 10.000
units
Cost per unit Rp 4.100 Rp 5.150 Rp 3.350
Competitor selling price per unit Rp 5.000 Rp 5.000 Rp 3.500

The following are FOH items:

Set up cost Rp 12.000.000
Inspection costs Rp 14.500.000
Material handling costs Rp 12.500.000
Total Rp 39.000.000

FOH activities are as follows:

Honey Apple Honey Orange Honey Grape
Setting up machine 1.000 x 400 x 600 x
Inspecting product 6.000 x 2.000 x 2.000 x
Handling materials 100x 300x 100x
Machine hours 4.000 6.000 3.000
Honey Syrup Inc.’s management curiously looks at the competitor selling price per unit,
especially for Honey Orange which is sold lower than Honey Syrup Inc.’s product cost.
Honey Syrup Inc.’s management assumes that competitor intentionally sells its product to
kill the company’s product

Required:
1. What costing approach is used by the company? Explain
2. Do you agree with management opinion that competitor sells its product lower than
the company’s product cost to kill the company’s product? Explain with supporting
calculation.