Question 1 Preston Consulting Ltd. provides accountancy services and has three different categories of clients: Limited companies, Partnership firms, and self-employed individuals. Preston Consulting Ltd, currently charges its clients a fee by adding a 20% mark-up to total costs. Currently, the costs are attributed to each client based on the hours spent on preparing accounts and providing advice. Preston Consulting Ltd. is considering changing to an activity-based costing system. The annual costs and causes of these costs have been analysed as follows: Particulars Accounts preparation and advice Requesting unavailable information Issuing payment reminders Holding client meeting Travelling to client locations Amount ($) 550,000 33,000 15,000 50,000 50,000 The following details relate to three of Preston Consulting Ltd's clients and to the company as a whole: Client A 1,000 Client B 250 Client C 340 Preston Ltd 18,125 Particulars Hours spent on preparing accounts and providing service Requests for unavailable information Payment reminders sent Hours spent on client meetings Kilometres travelled to client locations 10 250 400 10 250 NO 150 600 10,000 Required: a) Calculate the fees charged to these three clients as per the current costing system b) Calculate the fees charged to each of these three clients if the 20% mark-up is based on costs calculated as per activity based-costing system. (3 + 12 = 15 Marks) Question 2 Serangoon Toy Company (STC) expects to successfully launch Toy "D" based on a Doraemon character. STC must pay 15% royalty on the selling price to Fujio. STC targets a selling price of $100 per toy and profit 25% of selling price. The following are the cost data forecast: Particular Amount ($) per toy Component H1 8.50 Component H2 7.00 Labour: 0.4 hrs @ $60 per hour 24.00 Product specific overheads 13.5 In addition, each toy requires 0.6 kg of other materials, which are supplied at a cost of $16 per kg. You are required to determine if the above structure is within the target cost. If not, what should be the extent of cost reduction