QUESTION 1 The Gadget Co produces three products, A, B and C all made from the same material. Until now, it has used traditional absorption costing to allocate overheads to its products. The company is now considering an activity based costing system in the hope that it will improve profitability. Information for the three products for the last year is as follows: The price for raw materials remained constant throughout the year at $1.20 per kg. Similarly, the direct labour cost for the whole workforce was $14.80 per hour. The annual overhead costs were as follows: $ Machine set up costs 26,550 Machine running costs Procurement costs Delivery costs Required: 66,400 48,000 54,320 (a) Calculate the full cost per unit for products A, B and C under traditional absorption costing, using direct labour hours as the basis for apportionment. (5 marks) (b) Calculate the full cost per unit of each product using activity-based costing. (9 marks) (c) Using your calculation from (a) and (b) above, explain how activity-based costing may help the Gadget Co improve the profitability of each product. (6 marks) QUESTION 2 "Companies operating in an advanced manufacturing environment are finding that about 90% of the product's life cycle cost is determined by decisions made early in the cycle. Management accounting systems should therefore be developed that aid the planning and control of the product life cycle costs and monitor spending at the early stages of the life cycle." Required: Having regard to the above statement: (a) Explain the nature of the product life cycle concept and its impact on businesses operating in an advanced manufacturing environment. (7 marks) (b) Explain life cycle costing and state what distinguishes it from more traditional management accounting practices. (9 marks) (c) Explain briefly the concept of activity-based management and TWo benefits that its adoption could bring for a business. (4 marks)