Question 3 X-Lady Manufacturers produces three types of facial product. The company operates a traditional absorption costing system. Budgets for the next year is given below: Oat cream Sales Direct material RM60,000 RM10,000 Honey scrub RM38,000 RM 6.000 Bubble masks Total RM22,000 RM120,000 RM 4,000 RM 20,000 Direct labour RM 4,000 RM 2,000 RM 1,000 RM 7,000 Production overheads RM 15.400 Gross profit RM 77,600 Production and sales units 1,000 1,200 600 Production overheads are absorbed using direct material cost percentage rate. The management accountant of the company is proposing to change to an activity-based costing (ABC) system. The main activities, their associated cost drivers and overheads have been identified in the table below: Activity Machine set up Quality inspection Processing Purchasing Packaging Cost Driver Number of set-ups Number of product units Production overheads RM 3,600 Number of inspections RM 1.200 Processing minutes RM 6.500 Number of purchase orders RM 1,800 RM 2,300 RM15,400 Oat cream Honey scrub Bubble masks Number of units in a batch Machine set-ups per batch Purchase orders per batch Processing minutes per unit Quality inspections per batch 2 10 20 15 3 323I 4 1 4 1 1 1 Required: (a) Work out for each product the total production overhead costs using the current traditional absorption costing system. (5 marks) (b) Work out for each product the total gross profit using the proposed ABC system. (15 marks) (c) What do you observe about the production overheads allocated to Oat cream and Bubble masks? Compare and comment on these results as calculated in parts (a) and (b). (5 marks) [Total: 25 Marks]