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FG specializes in the manufacture of tablets, laptops and desktop PCs. FG currently operates a standard absorption costing system. Budgeted information for next year is given below:

Fixed production overheads are currently absorbed based on a percentage of sales revenue.FG is considering changing to an activity-based costing system. The main activities and their associated cost drivers and overhead cost have been identified as follows:

Further details have also been ascertained as follows:

Required:(a) Calculate the total gross profit for each product using the proposed activity-based costing system.(b) Discuss the differences between the gross profit figures calculated in part (a) compared with those calculated under the current absorption costing system.(c) Explain how the information obtained from the activity-based costing system could be used for cost management purposes.

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Products Sales revenue Direct material Desktop Tablets Laptops PCs $000 $000 $000 Total $000 3640 12480 9880 26000 800 2800 2200 5800 Products Desktop PCs Tablets Laptops Total $000 $000 $000 $000 Direct labour 300 Fixed production overheads 1456 Gross profit 1200 800 2300 4992 3952 10400 2928 7500 1084 3488 Activity Manufacturing scheduling Parts handling Assembly Software installation and testing Packaging Cost driver Number of orders Number of parts Assembly time Number of software applications Number of units Production overhead cost $000 162 2464 4472 2000 1302 10400 Budgeted production for next year (units) Average number of units per order Number of parts per unit Assembly time per unit (minutes) Number of software applications per unit Tablets Laptops 10000 12000 10 20 20 2 6 35 40 3 Desktop PCs 6000 4 25 30 4 Products Sales revenue Direct material Desktop Tablets Laptops PCs $000 $000 $000 Total $000 3640 12480 9880 26000 800 2800 2200 5800 Products Desktop PCs Tablets Laptops Total $000 $000 $000 $000 Direct labour 300 Fixed production overheads 1456 Gross profit 1200 800 2300 4992 3952 10400 2928 7500 1084 3488 Activity Manufacturing scheduling Parts handling Assembly Software installation and testing Packaging Cost driver Number of orders Number of parts Assembly time Number of software applications Number of units Production overhead cost $000 162 2464 4472 2000 1302 10400 Budgeted production for next year (units) Average number of units per order Number of parts per unit Assembly time per unit (minutes) Number of software applications per unit Tablets Laptops 10000 12000 10 20 20 2 6 35 40 3 Desktop PCs 6000 4 25 30 4

Answer rating: 100% (QA)

Gross profit activitybased costing system Tablets Laptops Desktop PCs Total Sales Revenue 3640 12480 ... View the full answer