in this how will I use the traditional method and how will I calculate direct labour or the whole cost under ABC method

REQUIRED: Each student will take the role of a management accounting consultant and present your analysis and recommendations/conclusions. The paper should be written in fluent grammatical English. It should include a bibliography of referenced sources. Internet resources used should be acknowledged and fully referenced. Copies of internet materials used should be submitted separately (in PDF format) with the final paper. All references and sources must be properly acknowledged. A copy of the final paper should be retained by the author. Case Background Processador Company manufactures a wide range of smallgoods (processed meats). Twenty years ago Processador Company had only three product lines (Mettwurst, Bologna sausage, and Saveloys. The company produced large volumes of each product, using very simple machinery and a lot of hard work. The company still makes and sells a lot of the original three product lines, but now also produces a wide range of low-volume speciality lines (Clobassy, Csabai, and Chorizo, amongst many others). The low-volume speciality lines are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the current figures indicate that these speciality lines have very good profit margins. The company has undergone some dramatic changes within the business over the past 20 years. The factory had seen the introduction of computer-controlled mincing and mixing machines and smoking ovens that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. In fact, right across the business, more and more effort had been placed on keeping the customer happy. Despite all this progress, the company seems to be struggling. Profits are declining, and for the company to survive senior management has indicated to staff that they must be more productive. Senior management also indicated that the company must focus on increasing sales, particularly in the range of high-margin specialty products. The company's management accountant had become concerned about the conventional product costing system at Processador Company. The manufacturing people were also sure that the costing system was distorting product costs. Written Report or Essay Prepare a report that outlines the benefits, costs and limitations of activity-based costing. (To set your report in the appropriate business context, you should refer to the information given in the case details above, the schedules provided below and the outcomes of the following requirements.) To support your report you should undertake the following (and use the outcomes in your report): 1. Assign the costs to the activity centers using the resource driver consumption patterns shown in Schedules 1 and 2. 2. Calculate the cost of each activity performed in the Mincing Centre, using the information provided above and in Schedule 3 3. A list of the activities performed and their annual costs is provided in Schedule 4 (some costs will need to be calculated as indicated above). In addition the schedule provides an activity driver for each activity and the annual quantity of each activity driver. Calculate the cost per unit of activity driver for the activities listed. (work to four decimal places.) 4. Based on the information calculated above and in Schedules 5 and 6, prepare a bill of activities and determine the cost per unit for Mettwurst and Csabai. 5. Would the difference in costs for the two products be reflected in the conventional costing system? Do you think that the existing costing system understates or overstates the cost of Mettwurst and Csabai? Explain your answers in details with reference to your calculations. 6. Your report should also describe the changes in cost structure that are likely to have occurred at Processador Company over the last 20 years, and speculate on their causes. 7. Explain how activity-based costing could overcome the deficiencies inherent in the existing costing system. And what factors should the management accountant consider when deciding whether to use an Activity-based system that includes both manufacturing overhead and non-manufacturing costs? School of Business Faculty of Law, Education, Business and Arts Semester 1, 2014 Page 4 of 8 CMA202_ASSIGN_114_CASE.DOCX Schedule 1 Cost Categories and Resource Drivers Cost category Wages Building costs Depreciation Consumables Energy Cost $3,000,000 $500,000 $1,000,000 $50,000 $400,000 Other $50,000 Total $5,000,000 Resource driver Number of employees Floor space Machine hours Orders placed by centre Kilowatt hours used Number of employees The current conventional approach to allocation of overheads is to use a plantwide rate. The current plantwide rate in use can be approximated by using the estimated annual number of units produced as the level of activity. Schedule 2 Resource drivers consumed by activity centres Cost categories (resource drivers) Wages Building costs Depreciation Consumables Energy Other (machine hours) (orders) (kilowatt hours) (employees) (employees) (m2) 3 200 10 3 10 500 15 10 2 500 - 2 Mincing 25 1,000 4,000 150 20,000 25 Mixing 25 1,000 5,000 100 200,000 25 Smoking and Packing 20 1,000 900 150 30,000 20 Administration 10 500 100 50 10 5 300 25 5 100 5,000 Activity centres Product Development Sales and dispatch Inspecting Corporate management Total quantity of resource drivers across all activity centres 10,000 500 250,000 100 Schedule 3 Activities and resource drivers used in the Mincing Activity Centre Activity Percentage of Percentage of labour time floor space Load mincer 20% 5% Operate mincer 50% 80% Unload mincer 20% 5% Move to mixing room 10% 10% 100% 100% Total The only activity that makes significant use of machinery (and therefore depreciation and energy) is 'Operate mincers'. Various supplies (consumables) used in the Mincing Activity Centre are almost all used by the mincing operator who orders these supplies as and when needed. School of Business Faculty of Law, Education, Business and Arts Semester 1, 2014 Page 5 of 8 CMA202_ASSIGN_114_CASE.DOCX Schedule 4 List of activities Activity Corporate management Process receivables Process payables Program production Process sales order Dispatch sales order Product Development Inspect meat Disposal of substandard meat Move to mincing room Load mincer Operate mincer Unload mincer Move to mixing room Set up scales Weigh ingredients Load mixers Operate mixers Clean mixers Move mixture to packing Pack into skins Setup smokehouse Move to smokehouse Smoke smallgoods Unload smokehouse Inspect smallgoods Move to truck Activity cost $185,000 $148,000 $148,000 $74,000 $223,900 $132,600 $112,500 $76,600 $17,200 $17,200 ?? ?? ?? ?? $43,625 $82,250 $164,500 $1,266,250 $87,250 $48,625 $161,250 $67,500 $36,250 $438,000 $36,250 $82,500 $41,250 Activity driver Assigned directly to products No. of invoices No. of purchase orders No. of production schedules No. of sales orders No. of dispatches Assigned directly to products No. of batches No. of batches No. of batches No. of batches No. of kilograms No. of batches No. of batches No. of batches No. of batches No. of batches No. of kilograms No. of batches No. of kilograms No. of trays No. of smallgoods No. of trays No. of batches No. of batches No.of trays No. of smallgoods Annual quantity of activity driver 5,000 2,500 1,000 4,000 2,500 1,000 1,000 1,000 1,000 200,000 1,000 1,000 1,000 1,000 1,000 200,000 1,000 200,000 16,000 800,000 16,000 1,000 1,000 16,000 800,000 invoices purchase orders production schedules sales orders dispatches batches batches batches batches kilograms batches batches batches batches batches kilograms batches kilograms trays smallgoods trays batches batches trays smallgoods \"??\" indicates that these figures must be calculated. \"smallgoods\" refers to units of processed meat products. School of Business Faculty of Law, Education, Business and Arts Semester 1, 2014 Page 6 of 8 CMA202_ASSIGN_114_CASE.DOCX Schedule 5 Mettwurst Activities consumed Corporate management Annual quantity of activity driver $4,625 Assigned directly to products Process receivables 500 invoices Process payables 200 purchase orders Program production 100 production schedules Process sales order 400 sales orders Dispatch sales order 500 dispatches Product Development $600 Assigned directly to products Inspect meat 100 batches Disposal of substandard meat 100 batches Move to mincing room 100 batches Load mincer 100 batches Operate mincer 30,000 kilograms Unload mincer 100 batches Move to mixing room 100 batches Set up scales 100 batches Weigh ingredients 100 batches Load mixers 100 batches Operate mixers Clean mixers Move mixture to packing Pack into skins Setup smokehouse Move to smokehouse 30,000 100 30,000 2,000 100,000 2,000 kilograms batches kilograms trays smallgoods trays Smoke smallgoods 100 batches Unload smokehouse 100 batches Move to truck Direct Materials Batch size Annual Volume 100,000 $240,000 smallgoods Assigned directly to products 1,000 100,000 School of Business Faculty of Law, Education, Business and Arts Semester 1, 2014 Page 7 of 8 CMA202_ASSIGN_114_CASE.DOCX Schedule 6 Csabai Activities consumed Corporate management Annual quantity of activity driver $463 Assigned directly to products Process receivables 150 invoices Process payables 100 purchase orders Program production 50 Process sales order 100 sales orders 150 dispatches Dispatch sales order Product Development $2,400 production schedules Assigned directly to products Inspect meat 50 batches Disposal of substandard meat 50 batches Move to mincing room 50 batches Load mincer 50 batches Operate mincer 4,000 kilograms Unload mincer 50 batches Move to mixing room 50 batches Set up scales 50 batches Weigh ingredients 50 batches Load mixers 50 batches Operate mixers Clean mixers Move mixture to packing Pack into skins Setup smokehouse Move to smokehouse 4,000 50 4,000 400 10,000 400 kilograms batches kilograms trays smallgoods trays Smoke smallgoods 50 batches Unload smokehouse 50 batches Inspect smallgoods 400 Move to truck Direct Materials Batch size Annual Volume 10,000 $40,000 trays smallgoods Assigned directly to products 200 10,000 School of Business Faculty of Law, Education, Business and Arts Semester 1, 2014 Page 8 of 8 CMA202_ASSIGN_114_CASE.DOCX