Read the case study below and prepare a Business Report as per the below requirements;

A UAE based company called Afreen Trading is engaged in the manufacturing, exporting and supplying of the beautiful Ladies Hand Bags in three different colours, White, Brown and Purple, which are all manufactured from the same form of raw material including pearl buffalo horn plates. The Company has used traditional full costing to allocate overheads to its products using direct labour hours. The Company is now considering using an activity-based costing system to improve its profitability. Information for the three Hand bags is given below for your analysis:

	White	Brown	Purple
Production Volume (Units)	30,000	24,000	36,000
Raw Materials Per Unit (kg)	1.5	2.4	3.0
Direct Materials Costs Per Unit ($)	3.6	5.76	7.2
Direct Labour hours Per Unit (Hrs)	0.2	0.3	0.4
Direct Labour Cost Per Unit ($)	5.92	8.88	11.84
Other Operational Data
Machine Hours Per Unit (Hrs)	0.5	0.7	0.9
Production Runs	32	24	16
Number of Purchases	48	56	84
Number of Deliveries	96	60	124
Selling Price Per Unit ($)	18.5	35	40

The price for raw materials per kilogramme is $2.40 and the direct labour cost per hour is $29.60.

The annual overhead costs along with the relevant cost drivers have been analysed below:

Overhead Cost Centre	Cost Driver	$
Machine Set Up Costs ($)	Production Runs	74,000
Machine Running Costs ($)	Machine Hours	120,000
Purchasing Costs ($)	Number of Purchases	94,000
Delivery Costs ($)	Number of Deliveries	112,000
Total		400,000

Required:

2. Discuss the potential cost management implications of switching to an ABC system.

[25%]

4. Discuss the effects on pricing and product profitability from switching from traditional absorption costing to an ABC system. [25%]
5. Explain the steps and possible pitfalls to avoid when introducing an ABC system into a business such as the one above. [20%]