Question 1 N High Tide is a family firm and has been producing is award winning racing rowing boats for over 25 years. The 3 types of rowing boat are assembled at the same workshop. The boats are: The Wave, The Swell and The Shore. As the company is growing. In order to compete with competitors. It has started to use more digital manufacturing and so has reluctantly reduced its labour work force Traditionally, High Tide absorbed its overheads on a labour hour basis. Last month they decided to appoint a Management Accountant, Mr O'Brien, who intends to look at the whole costing pricing system. M O'Brien is considering that given the change of production process a change to Activity Based Costing (ABC), in order to absorb overheads, may be beneficial to the company The following information has been provided: Annual output in units: The Wave 3,000 The Swell 2.000 The Shore 1.000 Annual Direct Labour Hours: The Wave 150.000 The Swell 250.000 The Shore 100.000 The overheads have been provided as follows Set up costs E1.000.000 Inventory costs 200.000 Quality Control E1.200.000 2.400.000 The 3 cost drivers have been identitied as: Set up costs - the number of times the machine is set up to produce the cycles Inventory costs - the number of stores requisitions Quality control the number of sales orders Number of setups The Wave The Swell The Shore 25 40 15 Number of Stores requisitions: The Wave 200 The Swell 250 The Shore 50 100 Number of sales orders The Wave 120 The Swell The Shore 80 Other information includes Direct Materials per unit The Wave E750 The Swell E600 The Shore E900 All direct labour is 10 per hour The Wave The Swell The Shore 750 600 900 All direct labour is 10 per hour. Required: a) Calculate the cost of a unit and its selling price using Full-cost plus Pricing for each type of product, if the company requires 20% profit, using: 1. The traditional method of absorbing overheads 2. Activity Based Costing (21 marks) b) High Tide are also working on the design of a new racing boat The Whitestuff, that they believe will be the best rowing boat on the market, as the design of its hull makes it different to all the other designs in the market at the moment. Mr O'Brien is due to hold a meeting with the Board of Directors of High Tide to discuss the pricing strategy for the launch of the Whitestuff. Required: Discuss the pricing strategies available to High Tide. (16 marks) c) Explain 'price discrimination and identify the 4 areas where it might be applied, giving examples of each. (13 marks) Total: 50 marks