Question 1: 50%

Pacific Furniture produces two types of exotic tables for indoor and outdoor. Pacific Furniture uses direct materials and direct labour as its direct cost, and one indirect cost that is allocated based on machine hours. The current selected data for recent year is as follow:

	Indoor	Outdoor
Units sold	3,200	1,800
Selling price	$125	$200
Direct material cost per unit	$30	$45
Direct production labour cost per hour	$16	$16
Direct production labour-hours per unit	1.50	2.25
Production runs	40	85
Material moves	72	168
Machine set-ups	45	155
Machine-hours	5,500	4,500
Number of inspections	250	150

Pacific Furniture has been using the traditional method for cost allocation, which allocates its indirect costs based on machine hours. Daniel, the manager of Pacific Furniture is interested in using the ABC system to improve its competitiveness in the current market. Therefore, Daniel collected the indirect cost activities as presented below:

Activity	Activity cost	Activity-cost driver
Production scheduling	$200,000	Production runs
Material handling	$45,000	Material moves
Machine set-up	$25,000	Machine set-ups
Assembly	$60,000	Machine-hours
Inspection	$8,000	Number of inspections

Marketing costs were determined to be 3% of the sales revenue for each type of table.

Required (show all workings)

1) Calculate manufacturing costs per unit for each type of table using the simple method that allocated indirect cost (overhead cost) based on machine hours.	(25 marks)
2) Calculate manufacturing costs per unit for each type of table using Activity Based Costing (ABC).	(25 marks)

Question 2: 50%

Champion Ltd manufactures and sells trophies for sport events and other contests. Its manufacturing plant has the capacity to produce 10,000 trophies each month. Current production and sales are 7,500 trophies per month. The company normally charges $150 per medal. Cost information for the current activity level is as follows:

Variable costs
Direct materials	$262,500
Direct manufacturing labour	300,000
Variable Overhead costs for 150 batches @$500 each	75,000
Fixed manufacturing costs	275,000
Fixed marketing costs	175,000
Total costs	1,087,500

Champion Ltd has just received one time only special order for 2,500 trophies at $100 per unit. Accepting the special order would not affect the companys existing customers. The current operation for its existing customers is in 50 trophies per batch (150 batches * 50 trophies per batch = 7,500 trophies). For the special order the company will make 100 unit per batch for 25 batches.

Required (show all workings)

(a) Should Champion Ltd accept this special order? Show your calculations.	(25 marks)
(b) As in requirement 1, assume that monthly capacity is 10,000 units. If the company accepts the special order and its existing customers immediately demand price discount $10 per trophy for the remaining capacity, should Champion Ltd accept the special order? Show your calculation.