Peter-Pan Itd manufactures a range of products used in the building industry. Manufacturing is undertaken using one of two processes: the Alpha Process and the Omega Process. All products are manufactured in batches. Page 4 of 6 MN20690 The current pricing policy has been to absorb all overheads using direct labour hours to obtain the total cost. The price is then calculated by adding a 35% mark-up. Management recently undertook a detailed analysis of overhead costs, being: Cost per month () Monthly volume 96,000 480 hours Alpha Process cots Omega Process cost Set-up cost 44,800 1,280 hours 260 set-ups 42,900 Handling charges 45,600 380 movements Other overheads 50,700 There are 4,000 direct labour hours used each month Two of Peter-Pan's large range of products are the TNK-B and the CPT-H. The TNK-B are produced using the Alpha Process whilst the CPT-H uses the Omega Process. The Omega process is a more complicated process that has more production stages in the process. Both products are sold by the metre. Details for the two products are: TNK-B CPT-H Monthly volume 1,000 metres 1,000 metres 500 metres 50 metres Batch size Processing time pre batch Alpha 100 hours Omega 25 hours Set-ups per batch 1 2 Handling changes per batch 1 movement 16 0.5 hours 5 movements 15 Material cost per metre Direct labour per metre 0.5 hours Direct labour is paid 16 per hour Required: a) Calculate the price per metre of TNK-B and CPT-H using the traditional absorption costing method using direct labour hours [6 marks] b) Calculate the price per metre for both TNK-B and CPT-H using activity-based costing. 'Other overheads' are apportioned using direct labour hours as the driver. [14 marks] c) In light of your answers to a) and b) above discuss four issues you'd raise with management. [8 marks]