Loki Electronics Ltd is an electronics company that manufactures mobile phones. As a result of the competitive nature of the electronics market, Loki Electronics Ltd provides extensive product-related after-sales services to its customers (e.g., distribution and after-sales support activities).

Loki Electronics Ltd is currently using a volume-based costing (VBC) system. Ms Amanda Carter, Loki Ltd's CFO, is contemplating changing to an Activity Based Costing (ABC) system.

Loki Electronics Ltd's Mobile Phone division produces five models of mobile phones. The following information has been provided for the month of January just ended:

The VBC information collected for the month just ended are as follows.

Mobile phones Models X400 X500 X600 X700 X800 Total

Mobile phones produced 200 250 400 900 250 2000

Conventional Costing X400 X500 X600 X700 X800 Total

$$ $$ $$ $$ $$ $$

Direct Materials 14,000 17,5000 28,000 63,000 17,500 140,000

Direct Labour 16,000 20,000 32,000 72,000 20,000 160,000O

verhead Cost applied* 10,800 13,500 21,600 48,600 13,500 108,000

Total Manufacturing Cost 40,800 51,000 81,600 183,600 51,000 408,000

Cost per phone 204 204 204 204 204

*Overhead = $$108,000; allocated on the basis of total units of phones produced

The cost of resources and resource drivers collected for the month just ended are as follows.

Resources $$ Resource Drivers Quantity of Resource Drivers

Salaries 48,000 No. of employees 12

Assembly machine depreciation 60,000 No. of assembly hours 6,000

Testing equipment depreciation 16,000 No. of testing hours 2,000

Motor vehicle costs 60,000 No. of kilometres travelled 10,000

154,000

Three main activities and their activity drivers for the Mobile Phone Division are identified as follows:

Activities No. of Resource Drivers Consumed Activity Drivers Activity Cost($)($)

Assembly setup 6000 Assembly hours No. of production batches 84,000

6 Employees

Quality testing 2 Employees No. of mobile phones produced 24,000

2000 Testing hours

Distribution & 10000 Kilometres travelled No. of distribution batches 46,000

customer support 4 Employees

Quantity of Activity Drivers X400 X500 X600 X700 X800 Total

Number of phones 200 250 400 900 250 2000

Number of production batches 4 5 2 4 5 20

Number of distribution batches 2 1 3 1 3 10

Required:

Should Loki Electronics implement an ABC system? Please apply the first three of the four criteria that you were taught. For the purpose of this question, you will only need to provide the required calculations and conclude.