PLZ PLA HELP HERE

SP Ltds Portsmouth division make two products, the A1 and the X3. The A1 has been in production for a number of years and they believe that it is very profitable but they are noticing increased competition. The X3 was introduced last year and while it is relatively expensive when compared to competitors products they are still disappointed by the sales volumes. Because of this they are considering discontinuing the product so they can concentrate on the A1. As the site management accountant you have decided to use activity based costing to analyse the two products profitability. To help you have collated the following data relating to last months performance:

		Product A1	Product X3
Quantity produced (units)		18,000	5,800
Sales price per unit		42	63
Material cost per unit		21	22
Direct labour cost per unit		8	16
Direct labour hours per unit		1	2
Machine hours per unit		2	4
Quality inspections in the period		100	200
Set-ups in period		12	52
Orders handled in the period		25	90

Indirect costs for the month
	Relating to machine activity						180,000
	Relating to production run set-ups						52,000
	Relating to handling of orders						36,000
	Relating to quality inspections						22,000

Required:

1. Calculate the profitability of each product for the month using an activity based costing approach.

[11 marks]

2. Explain why SP might wish to continue manufacturing the X3 (assume that your calculations for part a) showed the product to be loss making)

[14 marks]

3. Explain how the product design team at SP Ltd could use an understanding of activity based costing and value engineering to reduce product costs during the design stage

[6 marks]

4. Identify three benefits that target costing approach may bring to a company like SP Ltd