The budget for the production, planning and development department of Obba plc, is currently prepared as part of a traditional budgetary planning and control system. The analysis of costs by expense type for the period ended 30 November where this system is in use is as follows:

The total budget and actual costs for the department for the period ended 30 November are ?1 000 000 and ?1 060 000, respectively.The company now feels that an activity-based budgeting approach should be used. A number of activities have been identified for the production, planning and development department.An investigation has indicated that total budget and actual costs should be attributed to the activities on the following basis:

Required:(a) (i) Prepare two budget control statements for the production planning and development department for the period ended 30 November which compare budget with actual cost and show variances using: 1 a traditional expense-based analysis and 2 an activity-based analysis.(ii) Identify and comment on four advantages claimed for the use of activity-based budgeting over traditional budgeting using the production planning and development example to illustrate your answer.(iii) Comment on the use of the information provided in the activity-based statement which you prepared in(i) in activity-based performance measurement and suggest additional information that would assist in such performance measurement.(b) Other activities have been identified and the budget quantified for the three months ended 31 March as follows:

1: This includes all design costs for new products released this period.2: This includes a depreciation provision of ?300 000 of which ?8000 applies to 3 months? depreciation on a straight line basis for a new product (NPD). The remainder applies to other products.New product NPD is included in the above budget. The following additional information applies to NPD:(i) Estimated total output over the product life cycle: 5000 units (four years? life cycle).(ii) Product design requirement: 400 design hours.(iii) Output in quarter ended 31 March: 250 units.(iv) Equivalent batch size per purchase order: 50 units.(v) Other product unit data: production time 0.75 machine hours: volume 0.4 cu. metres; weight 3 kg.

Prepare a unit overhead cost for product NPD using an activity-based approach which includes an appropriate share of life cycle costs using the information provided in (b) above.

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Budget % Expense type Actual % Salaries 60 63 Supplies Travel cost 12 12 Technology cost Occupancy cost 10 12 13 Budget Actual Activities 1. Routing/scheduling – new products 20 16 2. Routing/scheduling – existing products 3. Remedial re-routing/scheduling 4. Special studies – specific orders 5. Training 6. Management and administration 40 34 12 10 8 10 15 15 15