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Bosche Limited manufactures two models of microwaves to cater for different consumers. Model 100 has basic functions, and mainly reheats food. Model 200 is a

Bosche Limited manufactures two models of microwaves to cater for different consumers. Model 100 has basic functions, and mainly reheats food. Model 200 is a more sophisticated model including convention and steam oven options as well as more capacity and power (wattage) and more stylish design and touch settings.

The following overhead cost pools and activity drivers have been determined .

Overhead Cost Pool

Budgeted

Overhead Cost

Activity Driver

Machine set-ups

$300,000

Number of setups

Material handling

$120,000

Number of units of materials used

Waste control

$20,000

Kilos of waste

Quality control inspection

$25,000

Number of inspections

Other overhead costs

$180,000

Labour hours

15,000 units of the MODEL 100 is produced which have the following production requirements:

No of Machine set-ups

20 Set-ups

Materials used

50,000 units

Waste produced

300 kilos

Number of inspections

40 inspections

Labour hours

1,000 hours

6,000 units of the MODEL 200 is produced, which have the following production requirements:

No of Machine set-ups

30 Set-ups

Materials used

70,000 units

Waste produced

100 kilos

Number of inspections

120 inspections

Labour hours

500 hours

Required

1. If Bosche Limited used a single, predetermined overhead rate based on labour hours, calculate the overhead rate per unit to be assigned to each microwave model. Round all calculations and rates to 2 decimal places where applicable.

2. If Bosche Limited was to adopt Activity Based Costing (ABC) use the table below to calculate

(i) The total cost driver and allocation rate for each overhead cost pool

(ii) The total overhead cost allocated to each model for each overhead cost pool

(iii) The overhead cost per unit.

3. Management of Bosche Limited are looking to reduce costs of production and are considering changing from their long-time supplier to a cheaper supplier found by the procurement team. Whilst satisfied with the current supplier, they are more expensive than their competitors by approximately 3%. What else must be considered by management before making the change?

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