Siqalo Bread (Pty) Ltd was started by Ms. Fresh after she got retrenched from a Cake bakery that closed its doors in April 2020 due to negative effects from the hard lockdown as a result of the Covid 19 pandemic. After struggling for the first few months of her business in a very competitive market,Ms. Fresh decided to use two of her grandmother's secret family recipes of corn and multigrain bread.Bread from these two recipes have turned to be loved by many South Africans. Siqalo Bread currently operates in Pretoria North and supplies to a few independent retailers on a cash delivery basis.

The company is currently using a traditional costing system. Fixed manufacturing overheads are based on budgeted normal capacity of 150 000 hours per year, of which 67 500 hours are allocated to Corn bread and 82 500 hours to Multigrain bread.

Ms. Fresh believes that the traditional costing system may be providing misleading information in the allocation of overheads to the products, as a result, she approached Mr. Mhambi, a Management accountant who has developed an activity-based analysis of the 2021 budgeted fixed manufacturing overheads which are set as below:

Expected fixed manufacturing overheads and activities involved:

Activity Cost drivers R

set-up costs Set-ups 31500

quality control Batches. 3150

Baking Baking hours 15 750

Packaging time Packaging hours 6900

not identified. - 13 200

Total 70 500

The analysis also revealed the following budgeted information:

Siqalo bread budgeted for 225 000 Corn bread loaves and 105 000 Multigrain bread loaves to be manufactured during the year. Manufacturing occurs in batches as follows:

Corn Multi-grain

Batch size 1500 1500

Baking time. 1300 1000

Packaging time 225 180

set-ups. 5 per batch 7 per batch

Questions

(a) Using activity-based costing (ABC),calculatethe budgeted total fixed manufacturing overheads ofMultigrain.

Note: Round off the allocation rates to two decimal places and the overheads to the nearest Rand figures.

(b) Briefly explainwhy ABC lead to a more accurate allocation of overheads than traditional costing (assuming that the environment is appropriate for ABC).