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It is 1 5 January 2 0 2 4 . Personal Best ( PB ) ' s Senior Management Team ( SMT ) is pressing
It is January Personal Best PBs Senior Management Team SMT is pressing ahead with its plan to launch the company's vegan
range of protein bars and protein powders. The vegan range will be branded as PBV and is set to be launched in April
You have the following conversation with Akida Agu, Finance Manager:
To protect PBVs vegan and lactosefree status, the new range must be manufactured in a separate production facility. The SMT has
already sourced a nearby building that can be used for this purpose.
Ben Morales, Production Director, is eager to use stateoftheart machinery in the new facility. The machinery includes robotic arms and
production machinery capable of being integrated with our production, inventory, purchasing and sales ordering systems. To conserve cash,
Ben obtained a quote from a company willing to lease the machinery for the new facility. I have attached this quote to this email Exhibit
I have a meeting with the SMT later today regarding PVV Could you assist me by preparing a briefing note which explains the following:
How the lease will initially be recorded in our accounting records and how it will be treated in our financial statements for the year
ended June and in subsequent years. subtask a
The manufacturing process for the vegan range will be similar to our existing range. However, the vegan production line will require two
inspectors to be recruited fulltime. The inspectors are required by law and will carry out routine tests to ensure that products are
vegan and lactosefree. In addition, instead of packing finished bars into boxes manually, robotic arms will perform this task instead.
The SMT had initially intended that facilitywide rates based on machine hours would be used for the variable and fixed production
overhead absorption rates. However, one member of the SMT has suggested that activitybased costing ABC might be a more appropriate
costing method for the new PBV range. At the moment, the SMT is unsure if ABC is a suitable costing method for the new range.
In your briefing note, could you include the following please:
Explain the factors that should be considered when deciding whether ABC would be a suitable costing method for the new PBV
range. subtask b
Reference materials
ExhibitLeasing quote for machinery
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