BACKGROUND When James Beech, a skilled carpenter, was made redundant he set-up KitTab Limited to produce a self-assembly dining table, the Constable. A few years later he introduced the Monet, also a self-assembly kit, and for several years KitTab achieved steady growth in turnover and profits selling the two tables to DIY stores. Increased competition in the self- assembly furniture market forced James to design the Bali, a more complex, adjustable table but still in kit form. The Dali has proved a success, its sales increasing as the demand for the Constable and the Monet declined. Moreover the Dali continues to sell surprisingly well despite a recent price increase. Ongoing demand for the Constable and the Monet appears to be dependent on maintaining old prices and as overall profitability is falling James is considering phasing out these and concentrating on the Dali and other new tables of more unusual design. James is, however, worried that his present product costing system is flawed and he has called you in as a consultant to advise him. DETAIL You establish that James runs an organised workshop using a batch production system, making each table type in alternate batches. To minimise the number of set ups of his machines he produces in batches larger than the sales order quantities and holds the excess in stock for the next order. Each table uses different types of wood and fittings. ACCY223 MANAGEMENT ACCOUNTING TRIMESTER 1 2022 All production overhead is currently absorbed on a machine hour basis but you ascertain that KitTab's processes involve four main activities. The budgeted costs and revenues, and cost driver information for a typical month are as follows: Activities Costs Cost Drivers $ Machining 13,400 machine hours Set-up 4,400 production runs Purchasing and Materials Handling 6,000 purchase orders Packing and Dispatch 4,200 sales orders Constable Monet Dali Sales Units 150 160 80 Sales Revenue (5) 21,000 20,800 12,800 Direct Costs: Materials (5) 5,250 7,680 4,000 Labour (5) 1,800 2,880 1,760 Machine Hours 525 315 160 Production Runs 3 3 4 Purchase Orders 10 10 20 Sales Orders 5 8 8 uulha VII-II-IJ J U U Your report to James Beech covering the following: f) An explanation of any evidence you find to support his suspicions that the present product costing system is flawed. g) A calculation of total profits, analysed by product, using the present (machine hour absorption) costing system. Highlight return on sales (profit margin) in total and by lroduct. h) A similar analysis using appropriate activity based costing methodology and burden rates. Highlight the amended return on sales (profit margin) of each product. i) Your explanation for the differences in product profit margins observed. j) Your recommendations to KitTab, including your advice on the future product and production strategies that KitTab should adopt as a consequence of the ABC analysis