• Nasilele Ltd manufactures and sells components used in the computer hardware industry. The company currently charge overheads to products using a plant-wide rate based on direct labour hours. Since its inspection 1988, the company has invested heavily in advanced manufacturing technologies and has increased their product range.

Nasilele Ltd operates in a very competitive market and due to current economic conditions they are coming under increasing pressure by their customers to reduce their prices. The company are considering the introduction of an Activity Based Costing (ABC) system and has provided the following information in relation to their three products:

	Product X	Product Y	Product Z
Direct materials per unit	K100	K120	K150
Direct labour hours per unit	10 hours	8 hours	9 hours
Machine hours per unit	4 hours	6 hours	3 hours
Production/sales in units	10,000	4,000	6,000

Direct labour is paid at K14 per labour hour. The company calculates selling price by applying a mark-up on cost of 25%.

Details of the overheads of Nasilele Ltd. are as follows:

	K
Machine related costs	246,000
Set-up costs	180,000
Delivery costs	68,000
Quality related costs	64,000

Further information in relation to all three products is given as follows:

	Product X	Product Y	Product Z
Number of set-ups	100	30	20
Number of deliveries	1,000	550	450
Number of inspections	200	100	100

Required:

• Calculate the unit production cost and unit profit using the traditional approach to costing.

(3 marks)

• Calculate the unit production cost and unit profit based on Activity Based Costing principles.

(11 marks)

• Identify three reasons why Nasilele Ltd. should implement an Activity Based Costing system.

(6 marks)

• Evaluate the application of Activity Based Management (ABM) in a company such Nasilele Ltd. (14 marks)

(Total 50 marks)