QUESTION 1 [25 MARKS] Dineo has recently set up a small business, which manufactures three different types of chairs to customer order. Each type is produced in a single batch per week and dispatched as individual items. The size of the batch is determined by the weekly customer order. The three different types of chairs are known as the Comfort, the Recliner and the Kgweetsa. The Comfort is a fully leather-upholstered chair and is the most expensive of the range. The Recliner is the middle of the range chair and has a comfortable leather seat. The cheapest of the range, the Kgweetsa, is purely a wooden chair, but Dineo feels it has great potential and hopes it will provide at least 50% of the sales revenue. Dineo has produced figures for the past month, July 2022 which is considered a normal month in terms of costs:

P P

Sales revenue 79,800

Material costs 17,250

Labour costs 27,600

Overheads 34,500

79,350

Profit 450

Comfort Recliner Kgweetsa

Units produced and sold during July 30 120 150

P P P

Selling price per chair 395 285 225

Less: Costs per chair

Material 85 60 50

Labour 120 100 80

Overhead absorbed on labour hours 150 125 100

355 285 230

40 0 (5)

Dineo would like to implement ABC. On this basis she extracted the following information:

Comfort Recliner Kgweetsa

Wood (metres) per chair 10 9 9

Leather (metres) per chair 4 29 0

Labour (hours) per chair 24 20 16

The overheads included in Julys profit statement comprised:

Set-up costs 5,600

Purchasing and checking leather hides 4,000

Purchase of wood 2,400

Quality inspection of leather seating 3,200

Despatch and transport 6,000

Administration and personnel costs 13,300

Required: a. Use the ABC technique to prepare a revised product cost statement for July 2022 such as Dineo might produce. (25 marks)