It is the end of $2024$ and the Frozen Donair Company has expanded and grown in the past

year now producing several styles of precooked and packaged frozen donairs. Each style of

donair requires different preparation time, different cooking times and different packaging.

Therefore the company management has decided to try ABC costing to better capture the

manufacturing overhead costs incurred by each style of donair, and has contracted you to

assist in the implementation. The following activities related to yearly manufacturing

overhead costs and cost drivers have been identified:

Estimated activity for the year is as follows; $40,000$ hours preparation labour time, $35,000$

cooking labour time, and $1,800,000$ packages. They have received an order from one

customer for $9,000$ mini donairs and $18,000$ mega donairs. This order is larger than normal,

and the customer is asking for a volume discount.

The Frozen Donair Company are not sure how much of a discount they can afford, and need

to know what the lowest price they can sell the mini and normal donairs at to maintain a

target of $10\%$ gross profit margin $($in order to cover selling and admin costs$)$ after

manufacturing overhead is allocated to each product for the order. They have no other

variable costs. Direct Labour costs are $$\frac{18}{?}$ hour.

Additionally they are considering lowering prices permanently, to gain more market share.

They have considered pricing their products at $2x$ direct, traceable costs $($ie$.$ not

considering Manufacturing Overhead$)$ plus $20\%(220\%$ in total$),$ but are unsure of the

profitability or true break even of each product with the new information from the activity

based costing, and are looking for you to explain what their actual costs are and recommend

whether they should continue with this pricing change.

Please prepare a memo $($a full written response$)$ to address the issues discussed above.

Please show support $($calculations$)$ where needed. They need a response ASAP, as such

don't worry about spelling, grammar or formatting other than to be clear and concise.