Question 1 Toy Creations Ltd, a small and medium Enterprise, specialises in children's toys with its pmducts being categorised into three major groups: Plushies, Dolls and Animals. The market for Plushies is expected to expand in the future but To}r Creations is currently struggling to maintain its market share due to the intense price competition in the industry. The market for Animals is assessed to be least price-sensitive among all pmducts. The company currently uses the step-down method to allocate its Material Handling and Quality Assurance {QA} costs to the three product groups, and prices all products using a cost-plus basis. The Material Handling and QA department costs are allocated based on the amount of purchases and number of labour hours respectiyely. The following information is available for the cost allocation exercise. Material _ -mm Cost before $2,500,000 $2,000,000 $1,800,000 $4,300,000 $3,250,000 III-- salaries 3?er one saw coo $600 one Storm-coco $400,000 Number of 250 150 200 550 500 laboUr hoUrs Part II Due to the increased intensity of competition, the company is contemplating the activity- based costing method to help understand and control its costs better. The following are the costing and operating details collected for the pilot testing purpose. Material QA Total Handling Documentation $750,000 $1,100,000 $1,850,000 Fork Lift Truck Depreciation $500,000 $250,000 $750,000 Palletizing $1,250,000 $1,250,000 Inspection $650,000 $650,000 $2,500,000 $2,000,000 $4,500,000 Plushies Dolls Animals Total Number of process checklist forms 7 17 13 37 Fork Lift Truck Hours 15 35 25 75 Number of pallets 25 145 80 250 Number of inspection hours 400 1.100 1,000 2,500Question 2 Fatt Choy Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: Sales are budgeted at $360,000 for November, $330,000 for December, and $320,000 for January. Cash collections from sales are expected to be 60% in the month of sale and 36% in the month following the sale. 4% of the sales is uncollectible. The cost of goods sold is 45% of sales. The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase. The company's operating expenses are estimated to be 40% of sales and are paid as incurred. The company has to pay a dividend of $100,000 in Nov.