• A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after-sales service to its customers. The after-sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine. The company’s existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the service department’s support activities to each size of machine. The service manager has suggested that the copy charge should more accurately reflect the costs involved. The company’s accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department: Activity Cost driver Overheads per annum $000 Customer account handling Number of customers 126 Planned maintenance scheduling Number of planned maintenance visits 480 Unplanned maintenance scheduling Number of unplanned maintenance visits 147 Spare part procurement Number of purchase orders 243 Other overheads Number of machines 600 Total overheads 1 596 The following data have also been collected for each machine size: Small photocopiers Medium photocopiers Large photocopiers Charge per copy $0.03 $0.04 $0.05 Average number of copies per year per machine 60 000 120 000 180 000 Number of machines 300 800 500 Planned maintenance visits per machine per year 4 6 12 Unplanned maintenance visits per machine per year 1 1 2 Total number of purchase orders per year 500 1 200 1 000 Cost of parts per maintenance visit $100 $300 $400 Labour cost per maintenance visit $60 $80 $100 Calculate the annual profit per machine for each of the three sizes of machine, using the current basis for charging the costs of support activities to machines. (4 marks) (b) Calculate the annual profit per machine for each of the three sizes of machine using activity-based costing. (14 marks) (c) Explain the potential benefits to the company of using an activity-based costing system.