Divine Grace Ltd (DG Ltd) is a fairly new company at the leading edge of paint-spraying...

 

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Divine Grace Ltd (DG Ltd) is a fairly new company at the leading edge of paint-spraying technology. The company recently received 3 substantial orders from Alpha Manufacturing Ltd (A), Beta Manufacturing Ltd (B) and Gamma Manufacturing Ltd (G). You are given the following details: A B G Activity Cost driver Cost Coat of paint per unit 7 6 5 Litres of paint per unit 7.6 8.6 6.3 Units sprayed 5,400 4,360 Paint stirring and quality control batches of paint f Electricity coats of paint 3,600 Filling of spraying machines 24,081 104,700 litres of paint 64,914 Batches of paint required 27 20 40 Machine attendant time (mins) per unit 30 45 75 Cost of paint per unit 15.20 11.18 18.90 Because the products ordered are in different shapes and sizes, different quantities of paint are needed. Paint is delivered in batches of various sizes, depending upon the finish required. Machine attendants are paid 5.30 per hour. Required: 1. Calculate the unit and total cost to DG Ltd of the products sprayed using labour-based absorption costing (15 marks). 2. Calculate the unit and total cost to DG Ltd of the products sprayed using ABC (15 marks). 3. Mention and explain 3 reasons why DGLtd could decide not to use of abandon the use of ABC techniques (7.5 marks). 4. Mention and explain 3 situations where a product unit cost calculated using an ABC system is likely to differ significantly from the unit cost for the same product calculated using a traditional absorption costing system based on direct labour hours (7.5 marks). Divine Grace Ltd (DG Ltd) is a fairly new company at the leading edge of paint-spraying technology. The company recently received 3 substantial orders from Alpha Manufacturing Ltd (A), Beta Manufacturing Ltd (B) and Gamma Manufacturing Ltd (G). You are given the following details: A B G Activity Cost driver Cost Coat of paint per unit 7 6 5 Litres of paint per unit 7.6 8.6 6.3 Units sprayed 5,400 4,360 Paint stirring and quality control batches of paint f Electricity coats of paint 3,600 Filling of spraying machines 24,081 104,700 litres of paint 64,914 Batches of paint required 27 20 40 Machine attendant time (mins) per unit 30 45 75 Cost of paint per unit 15.20 11.18 18.90 Because the products ordered are in different shapes and sizes, different quantities of paint are needed. Paint is delivered in batches of various sizes, depending upon the finish required. Machine attendants are paid 5.30 per hour. Required: 1. Calculate the unit and total cost to DG Ltd of the products sprayed using labour-based absorption costing (15 marks). 2. Calculate the unit and total cost to DG Ltd of the products sprayed using ABC (15 marks). 3. Mention and explain 3 reasons why DGLtd could decide not to use of abandon the use of ABC techniques (7.5 marks). 4. Mention and explain 3 situations where a product unit cost calculated using an ABC system is likely to differ significantly from the unit cost for the same product calculated using a traditional absorption costing system based on direct labour hours (7.5 marks).