Samba (Pty) Ltd manufactures three products, namely ChipNix, Ringles and ZigZags. The products are widely sold in South Africa. In response to the increase in market demand, Samba (Pty) Ltd has invested in new manufacturing technology in recent years, and as a result, has significantly reduced the size of its workforce. Historically, the company has allocated all overhead costs using direct labour hours, but is not considering introducing Activity Based Costing (ABC). Samba (Pty) Ltd's management accountant has produced the following analysis: The three cost drivers that generate overheads are: Deliveries to retailers - the number of deliveries to retailers Set-ups - the number of times the assembly line process is re-set Purchase orders - the number of purchase orders The annual cost driver volumes relating to each activity and for each type if product are as follows: The annual overhead costs relating to these activities are as follows: Direct labour is paid at R5 per hour. The company holds no opening or closing stocks. At a recent board meeting, there was some concern over the introduction of Activity Based Costing. The finance director argued: "I doubt whether selling ZigZags is viable but I am convinced that ABC would tell us more than the use of labour hours in assessing the viability of each product." The marketing director argue: "I am in the process of negotiating a major contract for ChipNix. For such a big order they will not pay our normal prices but we need to atleast cover our incremental costs. I am not convinced that ABC would achieve this as it merely averages costs for our entire production." The managing director argued: "I believe that ABC would be an improvement but it still has its problems. For instance if we carry out an activity many times, surely we get better at it and costs fall rather than remain constant. Similarly, some costs are fixed and do not vary either with labour hours or any other cost driver." The chairman argued: "I cannot see the problem. The overall profit for the company is the same no matter which method of allocating overheads we use. It seems to make no difference to me." REQUIRED: 1. On a per unit basis, calculate the profit for each of Samba's products using the existing method of allocating overheads. [10] 2. On a per unit basis, calculate the profit for each of Samba (Pty) Ltd's products using the Activity Based Costing method of allocating overheads. [15] 3. Compare the per unit profits calculated in (1) and (2) above and comment on the reasons for any differences. [5] 4. Evaluate the use of direct labour and Activity Based Costing as methods of allocating overheads. 5. Write a report to the directors of Samba (Pty) Ltd, as its management accountant, examining the implications of Activity Based Costing for Samba (Pty) Ltd, and in doing so, evaluate the issues raised by each director. [15] Round all workings to 2 decimal places