Question 1 PV manufactures three models of HD projectors: Mini, Portable and Home. The Mini model is a small-size projector that is ideal for basic games and education use at home; The Portable model makes a good travel companion, which uses advanced technology to minimize the power consumption and projector shaking problem; The Home model features a big projection screen and enhanced contrast ratio, which is ideal for customers looking for premium home theatre experience. Budgeting information for next year is given below: Model of projector Mini Portable Home Total Sales Total direct material Total direct labour Total production overhead Gross profit 1,080,000 352,000 214,000 1,728,000 548,000 268,000 2,040,000 804,000 332,000 4,848,000 1,704,000 814,000 1,392,000 938,000 Production/sales (units) Machine hours per unit Mini 10,000 0.5 Portable 9,000 1 Home 8,000 2 PV currently adopts a standard absorption costing system. The production overhead cost is absorbed using the machine hours. Required: 1.1 Calculate the production overhead absorption rate using the machine hours. (5%) 1.2 Calculate the gross profit for each product line. (5%) PV 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: Cost Driver Overhead cost Activity Machining Machine hours Set up 415,200 480,000 308,000 215,600 Number of set ups Number of quality inspections Number of shipments Quality inspection Shipping 1,392,000 The analysis also revealed the following information: Mini Portable Home 200 600 400 Number of set ups/production runs Quality inspection per production run Number of shipments 10 30 10 7,000 4,000 5,000 The machines are set up for each production run of each model. Required: 1.3 Calculate the gross profit margin for each model of projector using the proposed activity-based costing system (20%) 1.4 Explain why an activity-based costing system may produce more accurate product costs than a traditional absorption costing system. Use the figures calculated in earlier parts of the question to illustrate your answer. (20%) (TOTAL 50%)