Fashion Limited produces three clothing products, the standard cost of which are shown below:

		Jumper		Trousers		Blouse
		€		€		€
Direct Material		20		20		15
Direct Labour		30		40		50
Production overhead *		30		50		35
Standard production cost per unit		80		110		100
Units produced and sold		10,000		10,000		20,000

The company wishes to introduce Activity Based Costing (ABC) and has identified 2 main activities, production set-up and orders handling. Information on these activities and their associated cost drivers are set out below:

Activity Cost driver Expenses

Production set-up No. of set-ups €1,500,000

Orders handling No. of orders handled €300,000

Additional information provided by the management accountant is as follows for the period in question:

Jumper Trousers Blouse

No. of sets ups 12 16 20

No. of orders handled 200 300 1,000

Requirement

1. From the information given, calculate the Activity Based Cost of each of the three products Jumper, Trousers

and Blouse. (30 marks)

2. Comment on the differences between Standard Costing and Activity Based Costing cost per unit and advise the management accountant because they are different. What decision or actions can he take now that he is aware of

the ABC cost per unit. (10 Marks)

3. Advise the management accountant of the objective, merits, and limitations of Activity Based Costing.

"a.Prepare the annual pro forma financial statements that you would expect Mary to prepare based on her comments about her expectations for the business. Assume no principal will be repaid on the loan.

b.Review the statements you prepared for the first requirement and prepare a list of reasons why actual results for Mary and Jason’s business probably will not match their budgeted statements"