1 (30 marks) Instruction: Answer ALL Questions, The Burger Shack manufactures three types of burgers: lamb, beef and chicken. Each product uses similar quantities of direct materials, but different types. However, the same type of direct labour but in different quantities. For many years, the company has been using traditional costing and absorbing overheads on the basis of direct labour hours. Selling prices are then determined using cost plus pricing. Management is now contemplating an altemative costing system to the one currently used. The activity based costing system was proposed by the entity's new management consultant. Budgeted production and sales volumes for lamb, beef and chicken for the next year are 20,000 units, 16,000 units and 22,000 units respectively. The budgeted direct costs of the three products are shown below: Product Lamb S per unit Beef Chicken S per unit S per unit Direct materials 25 28 Direct labour ($12 per hour) 30 36 The Burger Shack also expects to incur indirect production costs of $1,377,400 for the upcoming year which are analyzed as follows: Cost pools Cost drivers Machine set up costs 280,000 Number of batches Material ordering costs 315,000 Machine running costs 782.400 Number of purchase orders Number of machine hours 1.377.400 The following additional data is related to each product: Product Lamb Beef Chicken No of batches 45 25 55 No of purchase orders per batch 4 5 4 Machine hours per unit 1.5 1.09 14 The Burger Shack wants to boost sales, profitability, return on investment and enhance its core competencies. In its quest to increase profits, the finance director has agreed to the method suggested by the management consultant, who had earlier suggested the activity based costing (ABC) instead of traditional costing, since this will alter the cost of the products and may therefore enable a different price to be charged. Required: (a) Calculate the budgeted full production cost per unit of each burger using the Burger Shack's current method of absorption costing. All workings should be to two decimal places. (6 marks) (b) Calculate the budgeted full production cost per unit of each burger using Activity Based Costing (ABC). All workings should be to two decimal places. (18 marks) (c) Discuss the impact on the selling prices and the sales volumes OF EACH BURGER which a change to activity based costing would be expected to bring about. (6 marks)