Hey i needed help with this questions. especially question 4.

Case Study Case Stu Presentation 10% Activity-based costing at Deant Safes This case highlights the deciencies of traditional methotk of product costing which employ single volume drivers of overhead cost allocation. It provides the opportunity to apply other costing methods in order to demonstrate di'erences in cost and price outcomes. The domestic safes division (DSD) of Deant Safes manufactures and sells reproof safes and document containers of various shapes and sizes for home use, including safes made to Australian'New Zealand Industry standard ASINZS 3809. The division now makes 50 different products but these fit into the two main product groups of 35 metal safes and 15 more recently developed plastic safest Table 1 shows last quarter's income statement by product group Table lDBDMrIMmmImtIywo-m Mud Ille- H-c Ital Total 5 S S S S 5 Sales revenues 296900 246800 543 T00 Direct materials 21500 20600 42100 Process and support costs 23 l 710 170200 402050 Total costs 253270 190960 444230 Net income 43630 W W Prot margin 4395 22 46% r8301: The managing director, Chrystal Chubb, is concerned because the net margin on metal safes has fallen below the company's target of 20 per centand because company profits have been falling despite overall sales growth and increased capacity utilisation. Metal safes is the high volume product group but sales fell by 5 per cent last quarter. Plastic safes sell at much lower volumes, but the sales of plastic safes increased by 15 per centlast quarter, despite recent price increases and their apparently high margins The marketing director, Clive Yale, tries to explain the trends as follows: The margins on metal safes are being squeezed because of ridiculously low prices set by the competition. Howe ver, the increased sales ofhigh margin plastic safes shouki compensate for this. i therefore propose to concentrate marketing resources on plastic safes. However, Chrystal highlights that despite selling more plastic safes overall profitability is falling. She questions the reliability of the present costing system, which has remained very traditional despite DSD having become a much more complex business in recent years. DSD's process and support costs are currently absorbed on the basis of total process hours using a single overhead absorption rate of $2 3,65 per process hour, Chrystal argues that although raw materials are cheaper, overall production of plastic safes is quite complex and she questions whether the simplistic costing Case Study Case Study Presentation (10%] system is missing something. She requests an investigation into improved costing procedures using an activity-based costing model. It is established that there are ve main activities undertaken by [3513. Table 2 shows details of these activities, their cost drivers and their estimated costs per quarten TablaBSD data on key m- Aevlty Cut driver insulation process Insulation process hours Assembly process Assembly process hour's Quality conuol Number of inspections Materials management Number ofrequisitions Selling and administration Number of sales orders Total process and support costs Table 3 shows last quarter's actual activity rates. 'l'ahleSDaevhynbllwthhtm Activity m Ills Insulation process hours TODD Assembly hours 2.800 Total process hours 9800 Number of inspections 40 Number of requisitions 300 Number ofsales orders 30 Plants an: BM mu s 130700 69600 sooso moo 23370 402050 Tm activity soon 1300:] 12oo 4ooo 7200 17000 too 14o Tilt] tooo 4': 77 The assembly process for plastic safes is quite complex and there has recently been a high level of rejects. This has resulted in the need for increased quality control activities. Plastic safes generally comprise more components than metal safes, causing more material movements The plastic safe product group is still new and DSD's customer base is characterised by a large number of customers each ordering small volumes. Case Study Case Study Presentation (10%) Required: 1. Explain the general problems associated with [3313's traditional costing system and highlight any indicators that the current costing system is outdated and flawed 2. Calculate the activity rates to be used in the desired activity-based costing system and produce a revised income statement by product group tracing process and support costs to product groups using activity-based costing methodology. 3. Explain the key differences in product costs and net prot margins between the two alternative costing systems 4. Provide advice to the managing director, stating key reasons, as to which costing system produces the most useil information for management. Also state your recommendations in respect of product strategy as a result of the information produced