It is $15$ January $2024.$ Personal Best $($PB$)\text{'}$s 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 PB$-$V and is set to be launched in April $2024.$

You have the following conversation with Akida Agu, Finance Manager:

$"$To protect PB$-$V$\text{'}$s vegan and lactose$-$free 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 state$-$of$-$the$-$art 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 $1).$

I have a meeting with the SMT later today regarding PV$-$V$.$ 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 $30$ June $2024$ and in subsequent years. $($sub$-$task $($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 full$-$time. The inspectors are required by law and will carry out routine tests to ensure that products are $100\%$

vegan and lactose$-$free. In addition, instead of packing finished bars into boxes manually, robotic arms will perform this task instead.

The SMT had initially intended that facility$-$wide 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 activity$-$based costing $($ABC$)$ might be a more appropriate

costing method for the new PB$-$V 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 PB$-$V

range. $($sub$-$task $($b$))"$

Reference materials

Exhibit$1-$Leasing quote for machinery