Layout References Review View Help Table Tell me what you want to do Editing (Body) 12 A A BI U V EE A Ov Fanadal Question 4, (Activity-Based-Costing) 20 Marks XY Ltd (XY) produces three products- L,M and N. During the previous fiscal year of 2018, XY incurred $4,000,000 of manufacturing overhead costs and produced 400,000 units product L, 40,000 units of product M and 100,000 units of product N. XY's overhead application rate was $20 per direct labour hour. Based on this rate, the cost per unit for each product group in 2018 was as follows: Direct materials Direct labour Overhead Total Product L Product M $8.00 $80.00 Product N $8.00 $12.00 $90.00 $30.00 $4.00 $60.00 $40.00 $24.00 $230.00 $78.00 The profitability of XY has been declining for the past three years despite the successful introduction of the new product M which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product M at a much cheaper price than any of his competitors, hence the reason XY can charge a much lower price for product M than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - $200,000 Purchase orders- Text Predictions: On $200,000 Insert Layout References Review View Help Table Tell me what you want to do Editing Calibri (Body) ~ 12 A A BI UA Ev Ev A~ Ov ench (Canada) The profitability of XY has been declining for the past three years despite the successful introduction of the new product M which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product M at a much cheaper price than any of his competitors, hence the reason XY can charge a much lower price for product M than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - $200,000 Purchase orders Scheduling $200,000 $3,000,000 Quality Inspections- $600,000 Total $4,000,000 The task force determined that it will use the following allocation bases: Number of purchase orders Machine Setups Number of setups Purchase orders Scheduling Quality Inspections- Number of production orders Number of units produced. Volume measures for 2019 for each product and each allocation base were as follows: Text Predictions: On ReferencES Review View Help Table y) 12 A A BI UA.. *** Machine Setups Number of setups Purchase orders - Number of purchase orders Scheduling Number of production orders Tell me what you want to do EE A Quality Inspections- Number of units produced Volume measures for 2019 for each product and each allocation base were as follows: Product B Product C Product A Total Number of setups 400 800 800 2,000 Number of purchase orders 200 500 300 1,000 Number of production orders 500 3,000 1,500 5,000 Number of units produced 200,000 1,200,000 600,000 2,000,000 Required: a) Calculate the unit costs of the three products under the new activity-based costing system b) What insight is provided by the new profitability analysis? c) What should XY do to improve profitability? Edit