QUESTION ONE

$[45]$

ABC Lid manufactures two types of pens. A click pen $($CP$)$ and a normal pen $($NP$).$ The following financial information relate to the budgeted production for the year ended $30$

November $2025$:

$\backslash$begin$\{$tabular$\}\{|$l$|$r$|$r$|$r$|\}$

$\backslash$hline & CP & NP & Total $\backslash \backslash$

$\backslash$hline $\backslash$multicolumn$\{1\}\{|$c$|\}\{\backslash (\backslash$cdot $\backslash )\}$ & $\backslash (\backslash$mathbf$\{$R$\}\backslash )$ & $\backslash (\backslash$mathbf$\{$R$\}\backslash )$ & R $\backslash \backslash$

$\backslash$hline Selling price & $200\mathrm{.}00$ & $125\mathrm{.}00$ & $\backslash \backslash$

$\backslash$hline Direct material & $\backslash ((40\mathrm{.}00)\backslash )$ & $\backslash ((30\mathrm{.}00)\backslash )$ & $\backslash \backslash$

$\backslash$hline Direct labour & $\backslash ((45\mathrm{.}00)\backslash )$ & $\backslash ((30\mathrm{.}00)\backslash )$ & $\backslash \backslash$

$\backslash$hline Variable production overheads & $\backslash ((20\mathrm{.}00)\backslash )$ & $\backslash ((15\mathrm{.}00)\backslash )$ & $\backslash \backslash$

$\backslash$hline Variable selling and administration costs & $\backslash ((15\mathrm{.}00)\backslash )$ & $\backslash ((10\mathrm{.}00)\backslash )$ & $\backslash \backslash$

$\backslash$hline Fixed production overheads & & & $360000\backslash \backslash$

$\backslash$hline Fuced selling and administration costs & & & $240000\backslash \backslash$

$\backslash$hline & $\backslash (\backslash$mathbf$\{$C P$\}\backslash )$ & $\backslash (\backslash$mathbf$\{$N P$\}\backslash )$ & Total $\backslash \backslash$

$\backslash$hline & $0\mathrm{.}75$ & $0\mathrm{.}50$ & $\backslash \backslash$

$\backslash$hline Labour hours per unit & $4500$ & $4500$ & $9000\backslash \backslash$

$\backslash$hline Total labour hours & & & $\backslash \backslash$

$\backslash$hline & $5500$ & $8500$ & $14000\backslash \backslash$

$\backslash$hline Budgeted sales $($in units$)$ & $6000$ & $9000$ & $15000\backslash \backslash$

$\backslash$hline Budgeted production $($in units$)$ & $60$ & $150$ & $\backslash \backslash$

$\backslash$hline Size of batches & $3$ & $5$ & $\backslash \backslash$

$\backslash$hline Number of units inspected for quality per batch & $0\mathrm{.}50$ & $0\mathrm{.}10$ & $\backslash \backslash$

$\backslash$hline Ordering of materials per batch & $5$ & $1$ & $\backslash \backslash$

$\backslash$hline Set$-$ups per batch & & & $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

Activity$-$Based$-$Costing

The managing director is concerned with the costing of the pens, as a consequence he has communicated this to you the management accountant. You have advised him to explore the possiblity of using activity$-$based$-$costing to allocate fixed costs on a more accurate basis.

After analysing the fixed production overhead costs, you found that $\backslash (41\backslash \%\backslash )$ of the costs related to quality inspections, $\backslash (31\backslash \%\backslash )$ to the ordering of materials and the balance related machine setups.

$\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|\}$

$\backslash$hline $\backslash$multirow$[$b$]\{2\}\{*\}\{$REQUIRED:$\}$ & $\backslash$multicolumn$\{2\}\{|$l$|\}\{$Marks$\}\backslash \backslash$

$\backslash$hline & Sub$-$total & Total $\backslash \backslash$

$\backslash$hline $1.$ Calculate the fixed overhead absorption rate per labour hour and per unit on the assumption that ABC Ltd allocates fixed costs based on labour hours. & $9$ & $9\backslash \backslash$

$\backslash$hline $\backslash$begin$\{$tabular$\}\{$l$\}$

$2.$ At the managing directors' request, reperform the absorption cost per unit by calculating the following: $\backslash \backslash$

a$.$ Allocate the costs to the different activities $($e$.$g$.$ quality inspection$)\backslash \backslash$

b$.$ Total activities per product and in total for each driver $\backslash \backslash$

c$.$ The cost per driver $\backslash \backslash$

d$.$ Allocation of the fixed overhead cost per activity to each product in total and per unit. $\backslash \backslash$

e$.$ Absorption cost per unit

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$l$\}$

$4\backslash \backslash$

$14\backslash \backslash$

$4\backslash \backslash$

$9\backslash \backslash$

$5$

$\backslash$end$\{$tabular$\}$ & $36\backslash \backslash$

$\backslash$hline TOTAL & & $45\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$