AC6401_Online_Summer 2020 paper (1) - Word (Product Activation Failed) MAILINGS REVIEW VIEW PAGE LAYOUT REFERENCES QUESTION FIVE Electrical Ltd manufactures a number of products. Details relating to 'Product A' and "Product B' are shown in the tables below. Product A Product B Annual production & sales 5,000 units 3,500 units Unit selling price 196 157 Direct materials (total) 277,000 160,000 Direct labour (total) 450.000 202,000 Machining operating costs (fixed) 80,000 65,000 Production batch size 100 units 50 units Set-up time per batch 2.5 hours 3.5 hours Functional testing time per unit 0.5 hours 1.0 hours Quality inspection time per batch 4 hours 6 hours Overhead Cost Pool Production set-up costs Quality inspections Functional testing Cost driver Set-up hours No. of batches No. of units Cost per unit of cost driver 40 per set-up hour 160 per batch 2.00 per unit SERT DESIGN PAGE LAYOUT REFERENCES MAILINGS ULLA SU el paper (1) - Word (Product Activation Failed) REVIEW View ANU. ULUS WW Electrical Ltd has been asked by one of its main customers to reduce the sales price for Product A to 180 per unit. Process improvements, designed to do this, are expected to yield net savings per unit of 5.90. A revised product design ("Product Q") has also been proposed. Expected effects of the new design, relative to the existing design for Product A. are as follows. Unit direct materials costs should decrease by 3.50 and unit direct labour costs should decrease by 4.30. ne spent at functional testing will increase by 10% initially, stabilising at 10 minutes less per unit than current requirements. Machine operating time is also expected to decrease to 90% of current levels. 'Product Q will require 3 set-up hours per batch, with each batch containing 200 units. Functional testing costs will increase to 2.20 per unit. All other production details remain unchanged. Required: Prepare a short note, explaining the concept and why it is useful for managing costs. (10 marks) (B) Using an activity-based approach, calculate the total product cost and the cost per unit for Product A and Product B. Determine the percentage mark-up for each product. (15 marks) (C) Calculate the target cost per unit for Product Q' if the company is to maintain the same percentage mark-up on full cost as for 'Product A'. Advise Electrical Ltd on whether or not the new design can reach this target cost, supporting your answer with relevant calculations. Briefly comment on the implications of your analysis