Question $12$

Tyne Ltd manufactures two products at its production plant in Egham, the Exe and

the Wye. The manufacturing process for the two products is very similar. An extract

of the production data for the current year is as follows:

The management accountant is investigating the adoption of activity$-$based costing

for Union plc$.$ The accountant has broken down the total production overhead

predicted for the coming year and identified the cost drivers as follows:

$($QUESTION CONTINUES ON NEXT PAGE$)$

Required:

$($a$)$ Using traditional product costing, calculate the full production

cost of one unit of Exe and one Unit of Wye.

Assume that production overheads are absorbed using machine

hours as the basis.

Round product costs to the nearest penny per unit.

$($b$)$ Using activity based costing, calculate the full production cost of

one unit of Exe and one Unit of Wye.

As part of your answer, you should calculate cost driver rates for

each cost pool.

Round product costs to the nearest penny per unit.

$($c$)$ According to CGMA $(2019)$ there are several steps in the activity

based costing process. Describe the steps, using the information

in the question and your answer to provide examples.

$($d$)$ The finance director of Tyne Ltd is being put under pressure by

the other members of the Board of Directors to report the

highest profits possible so that large dividends can be paid to

shareholders this year. The Finance Director has instructed the

management accountant to reduce provisions and accruals to

the lowest possible values. The management accountant, a

member of CIMA, takes his ethical responsibilities seriously and

is worried about the instructions from the Finance Director.

Briefly outline the course of action that should be taken by the

management accountant on receiving these instructions,

explaining your reasoning.