Carlos Camping Ltd manufactures tents and sleeping bags. There are three

separate production departments.

$1)$ The cutting department$-$ automated machines cut the fabric pieces for batches of

tents or sleeping bags.

$2)$ assembly tents $-$ are made by operatives using sewing machines

$3)$ assembly sleeping bags $-$ are made by operatives using sewing machines.

There are also two service departments:

$1)$ material stores

$2)$ maintenance department.

The company operates a traditional absorption costing system. Product costs

consist of direct costs of materials, labour and an apportionment of overhead

costs using overhead recovery rates. The work of staff in the cutting department

is charged to departments at a machine hour rate.

Shown below is the forecast information on use of resources for each product:

Tents Sleeping Bags

Small Medium Large Adult Youths

Direct Materials $$21\mathrm{.}00$ $$28\mathrm{.}00$ $$35\mathrm{.}00$ $$24\mathrm{.}50$ $$17\mathrm{.}50$

Cutting Dept. Machine hours $0\mathrm{.}30\mathrm{.}40\mathrm{.}50\mathrm{.}250\mathrm{.}35$

Direct Labour Hours $1\mathrm{.}01\mathrm{.}21\mathrm{.}30\mathrm{.}80\mathrm{.}7$

Direct Labour is charged to: Tents at $$17$ per hour

Sleeping Bags department at $$20$ per hour.

Overhead apportionment

Company

Total

Production Depts. Total

Service

Depts. Cutting Tents Sleeping

Bags

$$000$ $$000$ $$000$ $$000$ $$000$

Allocated Directly to Departments $1,484350222241671$

Company Indirect costs $17448594027$

Total Overheads $1,658398281281698$

Reapportionment of service departments

Stores $1322727-186$

Maintenance $210140162-512$

Total Apportioned Overheads $1,6587404484700$

Machine Hours $20,000$

Direct Labour Hours $48,00037,000$

Machine Hour Rate $$37\mathrm{.}00$

Overheads Per Direct Labour Hour $$9\mathrm{.}33$ $$12\mathrm{.}70$

$.$

AC$2097$ Management Accounting Page $7$ of $10$

Required:

$($a$)$ Calculate standard product costs per unit for each of the five products on

the traditional absorption cost basis, using the information given.

$(6$ marks$)$

$($b$)$ The company sets its prices based on competitors in the market. For $2024$

Tony the CEO estimates the prices he can charge for the Small, Medium

and Large tents will be $$77,$ $$91$ and $$105$ respectively, and for the Adult

and Youths Sleeping bags $$70$ and $$56.$ Tony aims to manufacture his

products at costs that give him selling prices at cost plus $25\%.$

For each of the five products calculate the $$Target Cost$$ and comment on

how the company might react to the comparison of target cost and the

costs calculated in a$)$ above.