(i) Demonstrate in columnar form the statement, in which you should include calculations of overhead absorption rates for each machine hour and each direct labour hour for each of the three production units. (10 marks) Hint: use cost drivers which you consider most appropriate, and these bases should be clearly represented in your answer (ii) Reallocate costs of Raw Material Stores, Canteen and Maintenance Departments to all six Departments. Remember that Canteen Department is allocated using labour hours and Maintenance Department is based on machine hours. (5 marks) (iii) calculate the full product cost for the Tent XL09, taking into account the following information: Mario the Saviour Ltd. manufactures tents and sleeping bags for tourists in three production departments: Cutting Room, Tents and Sleeping Bags. The whole process is organized in the following way: first, materials are cut in the cutting room and then are sewed in in either Tents or Sleeping Bags Departments. Additionally, Mario the Saviour Ltd. uses three Service Departments: Raw Material Stores, Canteen and Maintenance Departments. For the year to December, 31 cost centre expenses and other information are budgeted as follows: TOTAL () CUTTING ROOM () TENTS () SLEEPING BAGS () CANTEEN () MAIN TENANCE () RAW MATERIAL STORES () 47 600 0 194 000 46 900 9 300 2 700 21 400 900 19 800 8 400 8 900 15 600 87 000 19 300 81 600 40 500 16 000 15 000 2 000 3 500 4 900 35 000 15 700 9 200 27 600 INDIRECT WAGES CONSUMABLE MATERIALS PLANT DEPRECIATION POWER HEAT AND LIGHT RENT AND RATES BUILDING INSURANCE FLOOR AREA (SQUARE FEET) ESTIMATED POWER USAGE (%) DIRECT LABOUR (HOURS) MACHINE USAGE (HOURS) VALUE OF RAW MATERIAL ISSUES (%) 45 000 9 000 11 000 9 500 5 000 2 500 8 000 100% 21% 33% 27% 7% 10% 2% 200 000 50 000 81 000 69 000 0 0 0 78 000 2 000 36 000 40 000 - - - 100% 50,00% 25,00% 15,00% 0 o 10,00% Requirements: Tent XL09 Direct Materials $100 Direct labor hours in tent department 8 h Direct labor Rate (wage) per hour $15 Machine hours in cutting department 2 h Please note that overheads for Cutting Room Department are to be allocated based on machine hours in that department. Overheads in Tent Department are to be allocated based on direct labour hours. No work for the tent XL09 is done in Sleeping Bags Department. (4 marks) (b) 'The use of predetermined overhead absorption rates based on budgets is preferable to the use of absorption rates calculated from historical data available after the end of a financial period.' Discuss this statement insofar as it relates to the financial management of a business. (5 marks) (i) Demonstrate in columnar form the statement, in which you should include calculations of overhead absorption rates for each machine hour and each direct labour hour for each of the three production units. (10 marks) Hint: use cost drivers which you consider most appropriate, and these bases should be clearly represented in your answer (ii) Reallocate costs of Raw Material Stores, Canteen and Maintenance Departments to all six Departments. Remember that Canteen Department is allocated using labour hours and Maintenance Department is based on machine hours. (5 marks) (iii) calculate the full product cost for the Tent XL09, taking into account the following information: Mario the Saviour Ltd. manufactures tents and sleeping bags for tourists in three production departments: Cutting Room, Tents and Sleeping Bags. The whole process is organized in the following way: first, materials are cut in the cutting room and then are sewed in in either Tents or Sleeping Bags Departments. Additionally, Mario the Saviour Ltd. uses three Service Departments: Raw Material Stores, Canteen and Maintenance Departments. For the year to December, 31 cost centre expenses and other information are budgeted as follows: TOTAL () CUTTING ROOM () TENTS () SLEEPING BAGS () CANTEEN () MAIN TENANCE () RAW MATERIAL STORES () 47 600 0 194 000 46 900 9 300 2 700 21 400 900 19 800 8 400 8 900 15 600 87 000 19 300 81 600 40 500 16 000 15 000 2 000 3 500 4 900 35 000 15 700 9 200 27 600 INDIRECT WAGES CONSUMABLE MATERIALS PLANT DEPRECIATION POWER HEAT AND LIGHT RENT AND RATES BUILDING INSURANCE FLOOR AREA (SQUARE FEET) ESTIMATED POWER USAGE (%) DIRECT LABOUR (HOURS) MACHINE USAGE (HOURS) VALUE OF RAW MATERIAL ISSUES (%) 45 000 9 000 11 000 9 500 5 000 2 500 8 000 100% 21% 33% 27% 7% 10% 2% 200 000 50 000 81 000 69 000 0 0 0 78 000 2 000 36 000 40 000 - - - 100% 50,00% 25,00% 15,00% 0 o 10,00% Requirements: Tent XL09 Direct Materials $100 Direct labor hours in tent department 8 h Direct labor Rate (wage) per hour $15 Machine hours in cutting department 2 h Please note that overheads for Cutting Room Department are to be allocated based on machine hours in that department. Overheads in Tent Department are to be allocated based on direct labour hours. No work for the tent XL09 is done in Sleeping Bags Department. (4 marks) (b) 'The use of predetermined overhead absorption rates based on budgets is preferable to the use of absorption rates calculated from historical data available after the end of a financial period.' Discuss this statement insofar as it relates to the financial management of a business