PARTA - ATTEMPT 2 QUESTIONS ONLY Question 11 Lauda plc is a manufacturer of climbing boots. It currently produces three main types of boot for walkers and climbers - the Highland, the Mountaineer and the All- Weather. It is currently January 2020 and you have the following information available for the trading year that has ended in December 2019. You can assume that all output has been sold in the current trading year and that no stock remains at December 31st 2019. Highland (H) 1,500- 150- Mountaineer (M) 2,300- 180- All-Weather (A-W) 4,500- 2802 PRODUCT Sales (units) Selling price per unit: $c Costs per unit: $ Direct materiale Direct laboure 452 312 52- 35+ 602 40- + + Additional information relating to production is as follows:- M- 2- A-W- 10- 50- 10- Machine hours per 2- unite Number of units in 30- each production rune Despatch bundle 20- quantitye 20- 20- Lauda plc is concerned about the accuracy of its cost information given that production overheads have been increasing. The method of absorption costing currently used is through a machine hour rate. Overhead costs are as follows: Production Overheads per annum $- Machining Department costs 84,000- Set up costs (total) 38,000- Receipt of goods inwards- 24,000- Quality inspection - 30,000 Material despatch- 42,000- 2 Lauda plc employed a management consultant to help it try to determine the main activities that were driving costs in each area. The consultant's report highlighted the following areas as the cost drivers: Coste Cost Driver Machine department costs Machine hourse Set up costs Number of production runs- Receipt of goods inwards- Number of pairs of boots sold- Quality inspection- Number of production runs Material despatch- Number of bundles despatched Required: a) Calculate the unit cost, unit profit and unit margin percentage for each of the three products if all the production overhead costs are absorbed on a machine hour basis. (7 marks) b) Calculate the unit cost, unit profit and unit margin percentage for each of three products using activity-based costing (13 marks) c) Discuss your results to a) and b) and comment on any implications this may have for Lauda's current profitability and future strategic direction (6 marks) d) Discuss the difficulties involved for Lauda plc in using the activity-based costing data for planning and budgeting purposes for the trading year 2020. (4 marks)- Total 30 marks