Question 3 (28 marks) The Cheese Factory of Namibia (CFN) is a Namibian company that manufactures three types of cheese: Cheddar, Gouda and Cream cheese for the Namibian market. The following information for the forthcoming period has been extracted: Sales and production units Selling price per unit Prime cost per unit Machine department (machine hours per unit) ) Processing department (direct labour hours per unit) Products Cream Cheddar Gouda cheese 50 000 30 000 40 000 N$45 N$40 N$95 N$32 N$32 N$84 5 2 4 7 3 2 Overheads are allocated and apportioned to production departments (including service departments) and are to be recovered in the product cost as follows: Machining department: N$1.20 per machine hour Processing department: N$0.80 per direct labour hour . You ascertain that the above overheads could be reanalyzed into 'cost pools' as follows: N$ Cost pool Machining services Processing services Set-up costs Order processing Purchasing Cost driver 399 500 Machine hours 312 000 Direct labour hours 28 500 Set-ups 156 000 Customer orders 84 000 Supplier orders Quantity for the period ? ? 570 31 200 11 200 You have also been provided with the following estimates for the period: Products Number of Set-ups Customer orders Suppliers" orders Cheddar 225 15 200 4 200 Gouda 225 8 000 4 000 Cream cheese 120 8 000 3 000 Page 23 of 25 Requirement Mark Sub- Total total 6 6 12 18 3.1 Calculate the overhead costs that would be absorbed by the three products if CFN used their current absorption method. Calculate the overhead costs that would be absorbed by the three 3.2 products if CFN were to apply activity based costing (ABC) principles. Using CFN as an example, compare and contrast traditional 3.3 absorption and ABC principles and give recommendations to CFN that you see as appropriate supported by appropriate calculations where applicable. Note: Show all the necessary workings or steps that are required to reach 10 28