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solution on excel Alpha Ltd. produces three distinct products and sells them in bulk to smaller retailers. Its managers are concerned that the company's profit
solution on excel Alpha Ltd. produces three distinct products and sells them in bulk to smaller retailers. Its managers are concerned that the company's profit is not as high as its competitors. They believe they fall in profits could be caused due to the company's uncompetitive selling price(s), for one or more product, and losses on other products. Details of the company's costs and selling prices are as follows: Product Candle stand Napkin holder Cutlery tray E E 45.00 35.00 65.00 7.00 7.00 Selling Price Direct Costs Labour Direct Material - stainless steel Direct Material - other Total Direct Cost 14.00 15.00 15.00 44.00 10.00 17.00 15.00 22.00 Units produced Labour hours 1000 1 hour per unit 1250 700 1 hour per unit 2 hour per unit Currently the company uses the traditional method of allocating indirect overheads but is considering using the ABC method for increasing the accuracy. The company's indirect overheads are as follows: Depreciation Purchasing Expenses Direct Material - stainless steel delivery inspection costs Direct Material - other delivery inspection costs Set-up costs Canteen expenses 2000 100 45 300 200 400 Activities associated with the overheads are: - Candle stand Napkin holder Cutlery tray Number of suppliers 6 6 2 Component deliveries per month 1 2 1 Production runs per month 10 12 10 No. of employees 8 10 0 Value of machinery 5000 10000 5000 Required: a) Calculate the profit per unit for the three products based on the company's current labour hours based overhead method. (10 marks) b) Calculate the profit per unit for the three products using the principles of ABC. Explain your reasons for choosing the bases of overhead allocation (30 marks
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