From: Ben Numa, Finance Manager To: Finance Officer Subject: Activity based costing (ABC) and what-if analysis Production of the Cushy- R range will start next month. I think we should implement activity based costing (ABC) and also change how we schedule production runs. I need the approval of the Senior Management Team (SMT) and would like you to prepare a report that shows the benefits of ABC both in terms of costings and production planning. Please use the information shown in Table 1 and Table 2 (attached) about the Weaving Department. Required Please prepare content for a report to the SMT which: 1. Explains how the information in Table 1 and Table 2 supports the use of ABC instead of our current costing system. Please suggest how production runs should be scheduled in the Weaving Department and explain the benefits and potential issues to consider if your suggestion is implemented. [40 marks] 2. Suggest, with supporting justification, appropriate cost drivers for each of the two cost pools identified in Table 2 [16 marks] We now have a budget for the Cushy-R range for the period 1 April 2022 to 30 June 2022 (Table 3 attached). There is still however significant uncertainty over the budget variables, especially sales volumes and marketing spend. Therefore, I have calculated the sensitivity of profit to independent changes in the variables shown (Table 4 attached) Please prepare content for the report to the SMT which explains: 3. The sensitivity information shown in Table 4 and why the level of sensitivity differs depending on the budget variable. Please also explain the benefits and limitations of this analysis. [ 44 marks] Table 1: Extract from monthly budget planning document m2= square metre Table 2: Suggested cost pools and related production duties Note: All of the costs, other than the cost of the yarns and those related to powering the weaving machines, are included in fixed production overheads. Table 3: Budget for the Cushy-R range for the period 1 April 2022 to 30 June 2022 Table 4: Sensitivity of profit to variables