Questions:

Kumar & Sons Limited makes three products, using broadly the same production methods and equipment for each. A conventional (Traditional) product costing system is used at present, where manufacturing overhead is allocated using machine hour, a volume based driver. Details of the three products for a typical period are: Hours perunit Materials per Volumes Labour Machine unit [units) Hours Hours Product * 0.5 - 16 600 ProductY 1.5 - 10 1,300 Productz 2 20 7,000 Direct labour cost$7 per hour and production overheads are absorbed on a machine hour basis. The rate for the period is $25 per machine hour. Recently, a competitor has operated in the market so the management accountant of Kumar & Sons has advised the management to consider using an activity-based costing (ABO) system. Upon the management's approval, the management accountant was tasked to collect additional information. His analysis of the information is based on the overhead cost pools and the associated cost pool drivers.Further analysis shows that total of production overheads can be divided into the following cost pools as follows: Overhead Cost Pools Costs relating to set-ups 20 Costs relating to machinery 18 Costs relating to materials handling 25 Costs relating to inspection 37 TOTAL 100% The cost pool drivers that the management accountant has identified are as follows: Overhead Cost Pools Cost Drivers Costs relating to set-ups Number of Setups Costs relating to machinery Machine hours Costs relating to materials handling | Number of movement of materials Costs relating to inspection Number of inspectionThe following activity volumes are associated with the product line for the period as a whole. Total activities for the period are as follows: Product Type Number of Set- Number of Number of Ups movement of | inspections materials Product* 60 10 110 ProductY 110 25 170 Productz 420 80 620 TOTAL 590 115 900 REQUIRED (a) In the context of this question, briefly explain the term "volume-based driver" [b) Calculate the cost per unitfor each product using conventional method [round off your answers to 2 decimal places) ( c) Calculate the cost per unit for each product using ABC principle ( where necessary, round-offyour answers to 2 decimal places) [Hint: Refer to illustration 4-5 on page 13? of your textbook to view the ABC principle] [d) Comment on the reasons for any differences in the unit product costs in your answers to (b) and (c). [e) Explain the concept of Activity Based Management and how it can shape continuous improvement in organisation