Comma Ltd manufactures two types of Sprizzer – Standard and Deluxe. Each product requires the incorporation of a difficult-to-handle special part (one of them for a Standard and four for a Deluxe). Both of these products are made in batches (large batches for Standards and small ones for Deluxes). Each new batch requires that the production facilities are ‘set up’.

Details of the two products are:

In recent months, Comma Ltd has been trying to persuade customers who buy the Standard to purchase the Deluxe instead. An analysis of overhead costs for Comma Ltd has provided the following information.

Required:

(a) Calculate the profit per unit and the return on sales for Standard and Deluxe Sprizzers using both:
● the traditional direct-labour-hour-based absorption of overheads; and ● activity-based costing methods.

(b) Comment on the managerial implications for Comma Ltd of the results in

(a) above.

Transcribed Image Text:

Standard Deluxe Annual production and sales - units Sales price per unit 12,000 12,000 65 87 Batch size - units 1,000 50 Direct labour time per unit - hours 2 212 Direct labour rate per hour 8 8 Direct material cost per unit 22 32 Number of special parts per unit 1 4 Number of set-ups per batch 1 3 Number of separate material issues from stores per batch Number of sales invoices issued per year 1 1 50 240