B) South Valley Company has two production lines and uses a simple method of allocating overhead costs to the products that uses machine hours as the allocation base. The following estimates were made at the beginning of the year 2017 for all cost elements: Planned production units for the year Direct material cost Direct labor cost Overhead costs Production line A Production Line B 150,000 AED 1150,000 200,000 AED 1,600 AED 60,000 AED 600,000 AED 240,000 AED 330,000 Direct labor hours Machine hours 10,000 40,000 80 15,000 Discussion among top management revealed different points of view regarding the allocation method used and its accuracy. Some members are calling for using departmental rates to obtain accurate costing while others are calling for the application of activity-based costing. The controller indicated that a preliminary analysis of activities was done in late December 2016 to identify the activities and the cost drivers. The following table shows the results: Activity Machine set ups Production Cost Driver Production Line A Production Line B Number of set ups Number of production runs Number of Number of units Number of material moves 15 150 60 200,000 170 50 40 150,000 30 Assemb Material handli The controller added that estimated costs per activities were as follows: Activity Machine set u Production Inspection Assembly Material h Total Costs 80,000 300 120,000 275,000 155,000 930,000 The production schedule calls for the Company to produce during the month of April 25,000 units out of Production Line A and 15,000 units out of production Line B. The general manager (Mr. Sultan) has asked you to prepare an analysis that shows expected total manufacturing costs of a unit for the month of April of each production line under the following three allocation methods: a) Plant-Wide rate (simple method) (1 mark) b) Departmental rate method (2 marks) c) Activity-based method (4 marks) 1. 2. Determine the gross profit percentage for each product given that the sale price of a unit of product A is AED 50 and the price of a unit of produce B is AED 40. The Company sold 20,000 of product A and 10,000 units of product B (4 marks). B) South Valley Company has two production lines and uses a simple method of allocating overhead costs to the products that uses machine hours as the allocation base. The following estimates were made at the beginning of the year 2017 for all cost elements: Planned production units for the year Direct material cost Direct labor cost Overhead costs Production line A Production Line B 150,000 AED 1150,000 200,000 AED 1,600 AED 60,000 AED 600,000 AED 240,000 AED 330,000 Direct labor hours Machine hours 10,000 40,000 80 15,000 Discussion among top management revealed different points of view regarding the allocation method used and its accuracy. Some members are calling for using departmental rates to obtain accurate costing while others are calling for the application of activity-based costing. The controller indicated that a preliminary analysis of activities was done in late December 2016 to identify the activities and the cost drivers. The following table shows the results: Activity Machine set ups Production Cost Driver Production Line A Production Line B Number of set ups Number of production runs Number of Number of units Number of material moves 15 150 60 200,000 170 50 40 150,000 30 Assemb Material handli The controller added that estimated costs per activities were as follows: Activity Machine set u Production Inspection Assembly Material h Total Costs 80,000 300 120,000 275,000 155,000 930,000 The production schedule calls for the Company to produce during the month of April 25,000 units out of Production Line A and 15,000 units out of production Line B. The general manager (Mr. Sultan) has asked you to prepare an analysis that shows expected total manufacturing costs of a unit for the month of April of each production line under the following three allocation methods: a) Plant-Wide rate (simple method) (1 mark) b) Departmental rate method (2 marks) c) Activity-based method (4 marks) 1. 2. Determine the gross profit percentage for each product given that the sale price of a unit of product A is AED 50 and the price of a unit of produce B is AED 40. The Company sold 20,000 of product A and 10,000 units of product B (4 marks)