Question 5 - (Total 25 marks) Belt Limited manufactures two type of belts: Buckle and Fabric. The weekly production is 2,000 units each. The products are made in batches, before a batch can be made the production machinery must be set-up, checked for accuracy. Each batch produced has quality inspection to ensure that it is of the required standard. The following are the details of each product: Buckle Fabric Units produced in one batch 1,000 units 500 units Selling price per unit 150 90 Direct materials per unit 30 20 Direct labour per unit (two hours per 15 10 unit) The following are the fixed production costs each week: Set-up costs of machinery Quality inspection costs of production 48,000 21,000 Currently the company uses absorption costing, these costs are attributed to output on the basis of direct labour hours. The management is considering activity-based costing approach, you are required to: a) Calculate the overheads attributed to Buckle and Fabric each week through absorption (full) costing, on the basis of direct labour hours, show your calculation process (4 marks). b) Calculate the overheads attributed to Buckle and Fabric each week through Activity-based Costing with the cost divers of set-up and quality inspection, show your calculation process (8 marks). c) Prepare brief income statements to show how absorption costing and activity-based costing will deal differently with the costs, and advise the management of Belt Limited which is the more appropriate method of charging overheads to output (9 marks). d) List and explain Two limitations of Activity-based costing approach (4 marks)