PLEASE ANSWER THIS COST ACCOUNTING QUESTION OF ACTIVITY BASED COSTING I HAVE AN EXAM TOMORROW. PLEASE PROVIDE DETAILED EXPLANATION AND STEP WISE SOLUTION. THANKS IN ADVANCE.

CLO. $2$

BL$.4$

Gigabyte, Inc. manufactures three products for the computer industry.

$[30]$

Gismos $($product G$)$: annual sales, $8,000$ units

Thingamajigs $($product T$)$: annual sales, $15,000$ units

Whatchamacallits $($product W$)$: annual sales, $4,000$ units The company uses a traditional, volume$-$based product$-$costing system with manufacturing overhead applied on the basis of direct$-$labour costs $($Rs$.).$ The direct product costs $($per unit$)$ are as follows:

Manufacturing Overhead budget:

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$6$MP$105$ Accounting for Decision Makin!

Gigabyte's pricing method has been to set a target price equal to $1\mathrm{.}50\text{'}\%$ of full product cost. However, only the thingamajigs have been selling at their targeted price. Gigabyte has been forced to lower the price of gismos in order to get orders. In contrast, Gigabyte has raised the price of whatchamacallits several times, but there has been no apparent loss of sales. Gigabyte's competitors do not seem to be interested in the market for whatchamacallits. Gigabyte apparently has this market to itself. The actual current selling price are as follows:

$\backslash$table$[[,$Product G$,$Product T$,$Product W$],[$Actual Current Selling Price,Rs$.213\mathrm{.}00,$Rs$.254\mathrm{.}25,$Rs$.200\mathrm{.}00]]$

Required:

A$.$ Compute full cost per unit and selling price under traditional costing approach.

B$.$ Gigabyte's controller, Nan O'Second, recently attended a conference at which activity$-$based costing systems were discussed. She became convinced that such a system would help Gigabyte's management to understand its product cost better. She got top management's approval to design an activity$-$based costing system, and an ABC project team was formed. In stage one of the ABC project, each of the overhead items listed in the overhead budget was placed into its own activity cost pool. Then a cost driver was identified for each activity cost pool. Finally, the ABC project team compiled data showing the volume of cost driver that was consumed by each of Gigabyte's product lines. These data are summarized as follows:

Calculate the product costs for the three products based on an activity$-$based costing system. $($Round to the nearest rupee.$)$

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$6$Ml$\text{'}105$ Accounting for Decision Making

C$.$ Calculate a target price for each product, using Gigabyte's pricing formula under ABC system. Compare this new target prices with the current actual selling prices and previously determined as per traditional costing system. Comment on the reactions of Gigabyte's competitors to the firm's pricing strategy. What dangers does Gigabytes, Inc. face? Also give your analytical comments on the Gigabyte's competitive position at present and after the implementation of ABC system. $($Assuming selling prices derived by ABC are adopted.$)$