Question 1 Brennan Ltd specialises in the manufacture of tablets, laptops and desktop PCs. They currently operate a standard absorption costing system. Budgeted information for next year is given below: Products Tablets Laptops Desktop PCs Total "000 .000 *000 "000 Sales revenue 5,460 18,720 14,820 39,000 Direct material 1.200 4,200 3,300 8,700 Direct labour 450 1,800 1,200 3,450 Production overheads 2.184 7,488 5,928 15,600 Gross profit 1,626 5,232 4,392 11,250 Production overheads are currently absorbed based on a percentage of sales revenue. Brennan Ltd is considering changing to an activity-based costing system. The main activities and their associated cost drivers and overhead cost have been identified as follows: Activity Cost Driver Production overhead cost '000 Manufacturing scheduling Number of orders 243 Parts handling Number of parts 3.696 Assembly Assembly time 6,708 Software installation & testing Number of software applications 3,000 Packaging Number of units 1.953 15.600 Further details have also been ascertained as follows: Tablets Laptops Desktop PCs Budgeted production for next year (units) 10,000 12,000 6,000 Average number of units per order 10 4 Number of parts per unit 20 35 25 Assembly time per unit (minutes) 20 40 30 Number of software applications per unit 2 4 Requirement: (a) Calculate the total gross profit for each product using the proposed activity-based costing system 13 Marks 6 (b) Discuss the differences between the gross profit figures calculated in part (a) compared with those calculated under the current absorption costing system. 8 Marks