8 The Board of Directors of C Ltd has decided to capitalise on the relative success of its new 'Homedesk' by commencing production of the three new desk-accessory products, these products being the only output of the 'Skedsky' division. Initial costings, using traditional absorption costing, of the three new desk products have yielded the following forecast costs (all figures are based upon one year's production of each product): Charger Footrest Tidy Direct cost Production overhead* 4.00 5.00 3.00 2.00 8.00 5.00 Full cost per pack 6.00 13.00 8.00 *Absorbed on basis of direct labour hours Charger Footrest Tidy Budgeted quantity (production/sales units) 3,000 2,500 4,500 The company wishes to introduce Activity-Based Costing (ABC) and has identified two major cost pools for production overhead and their associated cost drivers. Information on these activity cost pools and their drivers is given below: Activity cost pool Cost driver Receiving inspecting and quality Number of quality checks Production scheduling Number of set-ups or batches Further relevant information on the three products is also given below: Cost associated with activity cost pool 32,500 16,000 Footrest Tidy 22 12 10 Charger Number of checks 8 20 Number of set-ups or batches 7 8 Required (a) From the information given for the 'Skedsky' division, calculate the activity-based production overhead cost per unit and the full cost per unit of each of the three types of accessory. (12 marks) (b) For each of the three types of accessory, analyse the differences between full cost per unit absorbed on a direct labour hour basis and the full cost per unit calculated in part (a) under Activity-Based Costing. Your analysis should be supported by explanations. (6 marks) (maximum for (b) 300 words) UMAD5S-15-3 continued over Page 11 of 12 (c) Explain how life-cycle costing could be used by the directors of B Ltd to manage the performance of the products in the 'Skedsky' division. (7 marks) (maximum 350 words) (Total: 25 marks)