Question 1 [35 marks; 63 minutes] Sofa Kings (Pty) Ltd is a small company that manufactures sofa cushions used in sofa couches and sells them to furniture retail outlets around South Africa such as DecoFurn, MRP Home, etc. Sofa Kings is run by James Brown, who is has been in the furniture business for a decade. Sofa Kings currently produces 2 types of cushions": A cushion for a regular sofa called the 'Regular' A cushion for a camp sofa called the 'Camp' The 'regular' is more durable than the 'camp' as regular sofas are used way more often than a camp sofa which is meant for less decorative purposes. To increase the durability of the 'regular' relative to the 'camp', the 'regular' requires twice as much labour time to complete than the 'camp'. In addition, the kilograms (kgs) of direct material used on the 'regular' is one- and-a-half times more than the 'camp' cushion in weight. For the year just ended, 31 March 2022, Sofa Kings produced and sold 200 000 'camp' and 400 000 'regular' cushions, at a selling price of R400 and R660 respectively. The income statement for the year ended 31 March 2022, was as follows: Sales Notes 2022 R'000 344 000 -80 000 -200 000 -36 000 4 000 Direct Material Direct labour Manufacturing overheads Note 1 Profit Note 1: These overheads were allocated based on the basis of labour hours. James is concerned that the current cost allocation isn't accurate and is considering the use of an activity-based costing system. Hhe has identified that manufacturing overheads can be further split between the following activities, together with the nature of the cost and the driver for each activity: Activity Percentage of Total cost Activity Driver Fixed/Variable Electricity 10% Machine hours Variable Rental of factory 5% Labour hours Fixed Marketing - Note 1 20% Units produced Fixed Depreciation-Note 2 5% Machine hours Fixed Machine-related costs 30% Machine hours Fixed Quality Assurance 15% Labour hours Fixed Stitching costs 15% Labour Hours Variable Total 100%