Advanced: Unit cost computation based on traditional and ABC systems Excel Ltd make and sell two products, VG4U and VG2. Both products are manufactured through two consecutive processes-making and packing. Raw material is input at the commencement of the making process. The following estimated informa¬ tion is available for the period ending 31 March:

Required:

(a) Using the above information, (i) calculate unit costs for each product, analysed as relevant. (10 marks)
(ii) comment on a management suggestion that the production and sale of one of the products should not proceed in the period ending 31 March. (4 marks)

(b) Additional information is gathered for the period ending 31 March as follows:
(i) The making process consists of two consecutive activities, moulding and trimming. The moulding variable conversion costs are incurred in propor¬ tion to the temperature required in the moulds. The variable trimming conver¬ sion costs are incurred in proportion to the consistency of the material when it emerges from the moulds. The variable packing process conversion costs are incurred in proportion to the time required for each product. Packing mat¬ erials (which are part of the variable packing cost) requirement depends on the complexity of packing specified for each product.
(ii) The proportions of product specific conversion costs (variable and fixed) are analysed as follows: Making process: moulding (60%); trim¬ ming (40%)
Packing process: conversion (70%); packing material (30%)
(iii)An investigation into the effect of the cost drivers on costs has indicated that the proportions in which the total product specific conversion costs are attributable to VG4U and VG2 are as follows:

Required:
Calculate amended unit costs for each product where activity based costing is used and company fixed costs are apportioned as detailed above.
(12 marks)

(c) Comment on the relevance of the amended unit costs in evaluating the management suggestion that one of the products be discon¬ tinued in the period ending 31 March.
(4 marks)

(d) Management wish to achieve an overall net profit margin of 15% on sales in the period ending 31 March in order to meet return on capital targets.
Required:
Explain how target costing may be used in achiev¬ ing the required return and suggest specific areas of investigation.

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(i) Conversion costs: Making Packing (000) (000) Variable Fixed 350 280 210 140