SECTION B

MIDIUM ANSWER TASKS

TASKTMO

You ae an Assistant Cosk Acoonlark and one morning you recerve the foliowing emal fom

the Finase Manager

From Finance Minager

To$.$ You $($Assestant Cost Acoountant$)$

Sent Tadiy

Subject Costing systems

The Board are looing at Foe possitely of indoducing new products. This could impact us in several areas but the main one of concem here is cosing$,$ other mandaclurers in our industry lend to use Actrily Based Cosing $($ABC$)$ Whereas we Use fradional atsopion cosong vsing drect labour

ho$.$rs to absorb oveiheods. To dabe the Board has not been in a hurry for us to change our costing sysbems but the polenoal for new product developenent has made Fis more of a prionity.

I have already undertaken some work on this for The CEO and have compleked a schedule $($see reference maferials below$)$ showing the calculaticn of standard costs for three existing products under the two proposed costing approaches. This has been bosed on ity best estmale of the data reeded as I have not had a great deal of time. I showed Eis $10$ The CEO but she expressed concem that many Board members know very I mete about ABC and the basis of the calculabors and will be sumpised to see how dfferent the costs and profitablity of scme ines are $3$

I am bed up with month end variances now, so it would be very usehd for me fand The CEOI$)$ if you could prepare some brieling noles that covers the following

Required.

$2\mathrm{.}1$ Sorve detal regarding how an activily$-$based costing system differs from a traditional absorption costing system using labour hours,

$(15)$

$22$ The adrantages and disadvantages to our business of using ABC,

$(15)$