Green Valley Private co. is a recycled plastic bag manufacturing company. It produces two different products, shopping bags and sack bags. Details of the cost of production for both products are given as follows.

(Shopping bags) (Sack bags)

Unit produced and sold. 12,000 units 22,000 units

Selling Price $27 per unit $30 per unit

Raw materials $8 per unit $10 per unit

Direct labour $4 per hour $5 per unit

Machine hours 4 hours per unit 8 hours per unit

Labour hours 5 hours per unit 6 hours per unit

Set ups 58 86

Customer orders 1600 4400

Purchase orders 1000 1800

Cost Pool Amount ($)

Set -up costs 5,184

Processing orders (Customer) 19,320

Procurement costs (Purchase) 11,816

Machine services 70,000 (Driver - Machine hours)

Assembling Department 52,000 (Driver - Labour hours)

Required

i.Prepare statement of profit for both products using the activity-based costing method.

ii. Discuss any three limitations of ABC costing method.

b.Green Valley produces 4000 units of rubber sheets working at 80% capacity. It receives an order from a foreign dealer for 1,000 units at $50 per sheet although the local market price is $90 per sheet. The cost of the product is given below:u $

Materials 10 per sheet

Labour 20 per sheet

Variable overheads 10 per sheet

Fixed manufacturing cost 80,000

Required: i. Advise the management of Green Valley whether to accept the order or not.