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BND Ltd manufactures three types of bathroom product. The products manufactured by the company are sold direct to bathroom retailers. BND Ltd currently operates a

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BND Ltd manufactures three types of bathroom product. The products manufactured by the company are sold direct to bathroom retailers. BND Ltd currently operates a standard absorption costing system whereby overheads are assigned to products using machine hours as the absorption basis. Budgeted information for the three products for the next year is given below: Material cost per unit Labour hours per unit Machine hours per unit Production/sales (units) Shower unit 50 2 1.2 8,000 Standard bathtub 65 2.8 1.8 9,000 Jacuzzi bathtub 150 3.5 4 800 Direct labour is paid at a rate of 20 per hour. In the next year production overheads are expected to amount to 1,798,000. BND Ltd is currently considering switching to a system of activity-based costing and the Finance Director has asked you to carry out some analysis on the production overhead activities You have identified five main activities, a cost pool for each activity, and appropriate cost drivers for each, as follows: Activity Purchase ordering Production scheduling Machine set-ups Machining Quality control Cost pool Cost driver 140,000 Number of supplier orders 108,000 Number of batches produced 294,640 Number of set-ups 696,000 Number of machine hours 559,360 Number of product inspections 1,798,000 Your analysis also revealed the following information: Shower unit Total number of supplier orders in the year 48 Production batch size (units) 1,000 Number of machine set-ups required per batch 2 Percentage of completed units inspected 5% 72 Standard Jacuzzi bathtub bathtub 160 750 200 4 9 4% 20% Required: a) Calculate the budgeted full production cost per unit of each product using the company's current method of absorption costing. (6 marks) b) Calculate the budgeted full production cost per unit of each product using an activity-based costing approach. (14 marks) c) Briefly comment on both the differences between your answers to a) and b) above and on the potential implications for BND Ltd

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