Motorcraft Ltd assembles three types of motorbikes at the same factory: the 50 cc Sunshine (S); the 250 cc Roadster (R) and the 1,000 cc Fireball (F). It sells motorbikes internationally. In response to market pressures Motorcraft Ltd has invested heavily in new manufacturing technology in recent years and as a result, has significantly reduced the size of its workforce. Historically, the company allocated all overheads using total direct labour hours but is now considering introducing activity-based costing. The company accountant has produced the following analysis. Sunshine Roadster Fireball Annual output (units) 2,500 2,000 500 Sunshine Roadster Fireball The three cost drivers that generate overheads are: Deliveries to retailers - the number of deliveries of motor bikes to retail showrooms Set-ups - the number of times the assembly line process is re-set to accommodate a production run of a different type of motorbike. Purchase orders - the number of purchase orders. Annual direct Labour hours Deliveries to retailers Set-up costs Purchase orders The annual cost driver volumes relating to each activity and for each type of motor bike are as follows: 250,000 250,000 100,000 150 400 250 (i) (ii) Number of deliveries to retailers Selling price ($ per unit) 5,000 7,000 10,000 $ 2,400,000 6,000,000 3,600,000 The annual overhead costs relating to these activities are as follows: Number of set-ups 25 45 30 All direct labour is paid $5 per hour. The company holds no inventory. Raw material Cost ($ per unit) 500 800 1,000 the existing method based upon labour hour (7 marks) activity-based costing Number of purchase orders Required: (a) Determine the overhead absorption rate used by Motorcraft Ltd using the data provide (2 marks) (b) Calculate the total profit on each type of product using each of the following methods to attribute overheads: 420 380 100 (13 marks)

Motoreraft Lid assembles three types of motorbikes at the same factory: the 50ce Sunshine (S); the 250ce Roadster (R) and the 1,000cc Fireball (F). It sells motorbikes internationally. In response to market pressures Motorcraft Ltd has invested heavily in new manufacturing technology in reeent years and as a result, has significantly reduced the size of its workforce. Historically, the company allocated all overheads using total direct labour hours but is now considering introducing activity-based costing. The company accountant has produced the following analysis. The three cost drivers that generate overheads are: - Deliveries to retailers - the number of deliveries of motor bikes to retail showrooms - Set-ups - the number of times the assembly line process is re-set to accommodate a production run of a different type of motorbike. - Purchase orders - the number of purchase orders. The annual cost driver volumes relating to cach activity and for each type of motor bike are as follows: The annual overhead costs relating to these activities are as follows: All direct labour is paid $5 per hour. The company holds no inventory. Required: (a) Determine the overhead absorption rate used by Motoreraft L.t using the data provide (2 marks) (b) Calculate the total profit on each type of product using each of the following metheds to attribute overheads: (i) the existing method based upon labour hour (7 marks) (ii) activity-based costing (13 marks)