John Bradshaw & Bros Ltd. manufactures different plastic toys for kindergartens in Lagos, Nigeria. Details of the toy production budget for the next accounting year are as follows. Note all costs are presented using the currency of Nigeria i.e., Nigerian Naira (₦):

Required

1. Compute the budgeted cost of the Transformer toys using ABC.
2. What are the main reasons why managers at John Bradshaw & Bros Ltd. would consider implementing  ABC system?
3. What are the problems that John Bradshaw & Bros Ltd. may face from an activity-based costing system?

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Activity Pools Material orders Packaging and handling Machine set-ups Service costs Quality control checks Machine costs Budgeted Overheads 12,500 25,500 10,100 25,400 14,800 40,200 Activity Pools Material orders Cost Drivers Number of orders Number of packaging and handling Number of set-ups Service hours Number of checks Number of machine-hours Toy handling Machine set-ups Service time (hours) Quality control checks Machine-hours Direct materials costs Direct labor costs Variable overheads The estimated activities for manufacturing its Transformer toy products for the last financial year are pre- sented here: Number/Costs 90 62 34 500 100 2,000 Budgeted Volume # 100,000 # 50,000 # 125,000 6,200 3,750 800 6,500 3,600 4,000