Question 4: Traditional Costing Versus Activity Based Costing (28 marks) Deadly Drop Down Ltd. (DDD) assembles and sells two types of climbing harness - the Trad and the Sport. The company has two production divisions: assembly and finishing. You have obtained the following information from the last month about the two products: Further information: 1. The company transfers products from assembly to finishing at full cost plus \20. A traditional total absorption costing approach is currently used based on labour hours. 2. The retail division sells the products directly to the public at the following prices: Trad harnesses for \\( \\$ 120 \\); Sport harnesses for \\( \\$ 100 \\). 3. The senior manager of the retail division thinks that the current costing system leads to an over-inflation of the prices her division is being charged. She believes that a costing system based on either a) machine hours or b) activities, would be fairer. Required a) Calculate the cost for each of the products - Trad and Sport harnesses - using traditional total absorption costing based on labour hours and calculate the transfer price. [5 marks] b) Calculate the cost for each of the products - Trad and Sport harnesses - using traditional total absorption costing based on machine hours and recalculate the transfer price. [5 marks] c) Using activity based costing to allocate the overheads, recalculate the cost of Trad and Sport harmesses and recalculate the transfer price. [11 marks] d) Calculate the monthly profit for the retail division under each of the three approaches above. [3 marks] e) Provide TWO reasons why the calculations in a) through d) might be useful to the retail manager. [4 marks] Protus tion and cales (unia) Cess (per unio) Materials Lakeur (S19 per huar) Makiae hours (pr umet) Tesal aumber of production rues Tetal number of machine nuistenance checks Total number of quality exmetrol checks Tetal purshase orders precessed Teal number of detiveries te finshing division Orencad cests to manufachure all trads and Spens. Machiec est-up coses Machine muiricaance costs Quality Inspection costs Ondring costs Delivery costs \\( \\begin{array}{lr}\\text { Trad } & \\text { sport } \\\\ 4,120 & 7.480 \\\\ 539 & 531 \\\\ 56 & 59 \\\\ 08 & 04 \\\\ 40 & 25 \\\\ 10 & 8 \\\\ 80 & 50 \\\\ 72 & 64 \\\\ 21 & 35\\end{array} \\) 89,500 136.125 76.486 13.651 101.210 Further infermation: 1. The company transfers products from avembly to finishing at full cost phus 20 . A traditional toul aborption costing apprnach is currently used bascd en lahour hours 2. The retail division sells the products difectly to the public at the foliowing prices: Trad harnesses for \\( S 120 \\). Sport harneseses for \\( \\$ 100 \\). 3. The senior munager of the retail tivision thinks that the current costing system leads to an over-inilation of hours or b) activitics, would be fairer. Required a) Calculate the cost for each of the products - Trad and Sport harnesscs - using traditional tocal abserption costing based on lahour hours and calculate the transfer price. b) Cakulate the cost for eash of the prodew - Trad and Sport hamesses - using iradicional total absorption costing based on machine hours and recalculate the bansfor price. c) Using actuvify bascd cesting to allocate the overheads, recalculare the cost of Trad und Sport haincsses and recalculate the transfer price. d) Calculate the monthly profit for the retail division under each of tie itres appruaches ahove. e) Provide TWO reasons why the calculations in a) through d) might be usetul to the retail manager