1.Assign the costs to the activity centres using the resource driver consumption patterns shown in Schedules 1 and 2.

2.Calculate the cost of each activity performed in the relevant (to your allocated case) activity cost centre, using the information provided in item 1 above and in Schedule 3

3.A list of the activities performed and their annual costs is provided in Schedule 4 (some costs will need to be calculated as indicated in item 2 above). In addition the schedule provides an activity driver for each activity and the annual quantity of each activity driver. Calculate the cost per unit of activity driver for the activities listed. (Calculate to four decimal places.)

4.Based on the information calculated in item 3 above and in Schedules 5 and 6, prepare a bill of activities and determine the cost per unit for each of the two product items identified.

5.Would the difference in costs for the two products be reflected in the conventional costing system?

6.Do you think that the existing costing system understates or overstates the cost of the two products identified in item 4 above? Explain your answers in detail with reference to your calculations.

7.Consider and describe the changes in cost structure that are likely to have occurred at the Company over the last 15 to 20 years, and speculate on their causes.

8.Now complete your analysis and prepare your report.Your report should identify if there are any deficiencies inherent in the existing costing system and if so explain (using the outcomes from items 1 to 7 above) how activity-based costing could overcome these deficiencies.If, in your analysis, you determine there are no inherent deficiencies, explain (again using the outcomes from items 1 to 7 above) why not.

9.Include in your discussion, what factors the management accountant should consider when deciding whether to use an Activity-based system that includes both manufacturing overhead and non-manufacturing costs.And furthermore outline the benefits, costs and limitations of activity-based costing.

Bakverk Company Case and Data Schedules Bakverk Company Case Background Bakverk Company manufactures a wide range of pastries. Fifteen years ago Bakverk Company had only three product lines (Custard Tarts, Apple Pies and Fruit Mince Pies). The company produced large volumes of each product, using very simple machinery and a lot of hard work. The company still makes and sells a lot of the original three product lines, but now also produces a wide range of low-volume speciality lines Apricot and Cherry Danish, Apple and Cinnamon Danish and Baklava pastries, amongst many others). The low-volume speciality lines are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the current figures indicate that these speciality lines have very good profit margins. The company has undergone some dramatic changes within the business over the past 15 years. The factory had seen the introduction of computer-controlled mixing and filling machines and baking facilities that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. In fact, right across the business, more and more effort had been placed on keeping the customer happy. Despite all this progress, the company seems to be struggling. Profits are declining, and for the company to survive senior management has indicated to staff that they must be more productive. Senior management also indicated that the company must focus on increasing sales, particularly in the range of high-margin specialty products. The company's management accountant had become concerned about the conventional product costing system at Bakverk Company. The manufacturing people were also sure that the costing system was distorting product costs. Schedule 1 Resource Cost Categories and Resource Drivers Cost category Wages Building costs Depreciation Consumables Energy Other Total Cost $3,120,000 $325,000 $650,000 $32,500 $136,500 $32,500 $4,296,500 Resource driver Number of employees Floor space Machine hours Orders placed by centre Kilowatt hours used Number of employees - All Wages Costs can be considered indirect costs for the purposes of this case. - The current conventional approach to allocation of overheads is to use a plantwide rate. - The current plantwide rate in use can be approximated by using the estimated annual number of units produced as the level of activity. Schedule 2 Resource drivers consumed by activity centres Cost categories (resource drivers) Activity centres Wages Building costs (employees) New Product Development Sales and dispatch Other (employees) 10 0 1 50 0 10 0 6 50 0 0 0 1 4000 100 130000 16 5000 70 200000 16 1000 100 130000 13 50 0 30 0 6 30 0 20 0 6 10000 340 460000 65 0 6 Inspecting 0 1 1 6 Filling 1,000 1 6 Baking and Packing 1,000 1 3 1,000 Administration 0 6 Corporate management 0 6 Total quantity of resource drivers across all activity centres Energy (kilowatt hours) 0 1 Mixing Consumables (orders) 20 Depreciation (machine hours) 0 (m2) 6 5 5,000 * All Calculations to 4 decimal places Schedule 3 Activities and resource drivers used - Baking and Packing Activity Stack cases on baking trays Setup ovens Move to ovens Bake products Unload oven Move to truck Total * All Calculations to 4 decimal places Percentage of labour time 25% 10% 5% 50% 5% 5% 100% Percentage of floor space 25% 5% 5% 50% 5% 10% 100% In this Activity Centre, the only activity that makes significant use of machinery (and therefore depreciation and energy) is Bake products Various consumables used in this Activity Centre are almost all used by the Bake products personnel, who order these supplies as and when needed. Schedule 4 List of activities Activity Corporate management Process receivables Process payables Production planning Reports to Health Dept Process sales order Dispatch sales order New Product Development Inspect filling ingredients Disposal of substandard filling Move to mixing room Set up mixer Load mixer Operate mixer Unload mixer Clean mixer Move to filling room Set up pastry cases Weigh ingredients Load hopper Fill pastry cases Activity cost $312,412 $127,297 $71,774 $127,297 $8,100 $201,174 $123,282 $62,456 $30,800 $8,100 $8,100 $80,850 $80,850 $664,035 $158,450 $80,850 $84,100 $42,050 $80,850 $161,700 $818,039 Annual quantity of activity driver invoices purchase orders production Activity driver schedules Reports Assigned directly to sales orders products No. of invoices 3,300 dispatches No. of purchase orders 1,600 No. of production schedules 650 batches batches No. of Reports 65 batches batches No. of sales orders 2,600 batches litres No. of dispatches 1,600 batches batches batches batches Assigned directly to new products lines No. of batches 650 batches batches No. of batches 650 litres batches litres No. of batches 650 products trays trays No. of batches 650 trays trays trays No. of batches 650 trays No. of litres 130,000 Finished trays No. of batches No. of batches No. of batches No. of batches No. of batches No. of batches No. of litres 650 650 650 650 650 650 130,000 Clean hopper Move to baking Stack cases on baking trays Setup ovens Move to ovens Bake products Unload oven Inspect finished products Disposal of substandard product Move to truck * All Calculations to 4 decimal places \"??\" indicates that these figures must be calculated. Schedule 5 Custard Tart Activities consumed Corporate management $84,100 $45,300 ?? ?? ?? ?? ?? $17,800 $8,100 ?? Annual quantity of activity driver $62,482 Process receivables No. of batches No. of litres No. of products No. of trays No. of trays No. of trays No. of trays No. of trays No. of trays No. of trays 30 Assigned products invoices directly 10 purchase orders 650 130,000 520,000 10,400 10,400 10,400 10,400 10,400 10,400 9,880 to ucts lines 0 Process payables 0 Production planning 6 production schedules 0 Reports to Health Dept Reports 6 Process sales order 33 sales orders 30 dispatches 0 Dispatch sales order 0 New Product Development $0 Inspect filling ingredients 6 Assigned directly to new prod batches 6 batches 6 batches 6 batches 6 batches 0 Disposal of substandard filling 0 Move to mixing room 0 Set up mixer 0 Load mixer 0 Operate mixer litres 26,000 Unload mixer 6 batches 6 batches 0 Clean mixer 0 Move to filling room 6 batches 6 batches 6 batches 6 batches 0 Set up pastry cases 0 Weigh ingredients 0 Load hopper 0 Fill pastry cases litres 26,000 Clean hopper 6 batches 0 Move to baking litres 26,000 Stack cases on baking trays products 104,000 Setup ovens 1,04 trays 1,04 trays 1,04 trays 1,04 trays 1,04 trays trays Finished trays 0 Move to ovens 0 Bake products 0 Unload oven 0 Inspect finished products Disposal of substandard product Move to truck 0 Direct Materials $6 Current Market Selling Price Batch size $14 2,00 per litre Assigned directly to products per unit of product 0 Annual Volume 104,000 * All Calculations to 4 decimal places Schedule 6 Apple and Cinnamon Danish Activities consumed Corporate management Process receivables Annual quantity of activity driver $7,510 Assigned products invoices directly to ucts lines 100 Process payables purchase orders 100 Production planning production schedules 30 Reports to Health Dept Reports 4 Process sales order sales orders 100 Dispatch sales order dispatches 100 New Product Development $20,610 Inspect filling ingredients Assigned directly to new prod batches 40 Disposal of substandard filling batches 40 Move to mixing room batches 40 Set up mixer batches 40 Load mixer batches 40 Operate mixer litres 6,250 Unload mixer batches 40 Clean mixer batches 40 Move to filling room batches 40 Set up pastry cases batches 40 Weigh ingredients batches 40 Load hopper batches 40 Fill pastry cases litres 6,250 Clean hopper batches 40 Move to baking litres 6,250 Stack cases on baking trays products 13,000 Setup ovens trays 260 Move to ovens trays 260 Bake products trays 260 Unload oven trays 260 Inspect finished products trays 260 Disposal of substandard product trays 260 Move to truck Finished trays 250 Direct Materials $8 Current Market Selling Price Batch size $18 per litre Assigned directly to products per unit of product 400 Annual Volume 12,500 * All Calculations to 4 decimal places Prepare a report on your analysis of the case. Your report should identify if there are any deficiencies inherent in the company's existing costing system and if so explain how activity-based costing could overcome these deficiencies. If, in your analysis, you determine there are no inherent deficiencies, explain why not. (To set your report in the appropriate business context, you should refer to the information given in the case details, the schedules provided and the outcomes of the following requirements.) To support your report you should undertake the following (and use the outcomes in your report): 1. 2. 3. 4. 5. 6. 7. 8. 9. Assign the costs to the activity centres using the resource driver consumption patterns shown in Schedules 1 and 2. Calculate the cost of each activity performed in the relevant (to your allocated case) activity cost centre, using the information provided in item 1 above and in Schedule 3 A list of the activities performed and their annual costs is provided in Schedule 4 (some costs will need to be calculated as indicated in item 2 above). In addition the schedule provides an activity driver for each activity and the annual quantity of each activity driver. Calculate the cost per unit of activity driver for the activities listed. (Calculate to four decimal places.) Based on the information calculated in item 3 above and in Schedules 5 and 6, prepare a bill of activities and determine the cost per unit for each of the two product items identified. Would the difference in costs for the two products be reflected in the conventional costing system? Do you think that the existing costing system understates or overstates the cost of the two products identified in item 4 above? Explain your answers in detail with reference to your calculations. Consider and describe the changes in cost structure that are likely to have occurred at the Company over the last 15 to 20 years, and speculate on their causes. Now complete your analysis and prepare your report. Your report should identify if there are any deficiencies inherent in the existing costing system and if so explain (using the outcomes from items 1 to 7 above) how activity-based costing could overcome these deficiencies. If, in your analysis, you determine there are no inherent deficiencies, explain (again using the outcomes from items 1 to 7 above) why not. Include in your discussion, what factors the management accountant should consider when deciding whether to use an Activity-based system that includes both manufacturing overhead and non-manufacturing costs. And furthermore outline the benefits, costs and limitations of activity-based costing