The answer is in two parts and the following method

Jackson Ltd - continued: The finance office (cost and management accounts) recently performed an 'activity based production systems analysis for the fixed production overheads. The result is the table below: Cost E Cost driver Total cost driver quantity per period Indirect production overhead recovery rate 100 80.00 16.00 Set up costs Production scheduling Quality control Depreciation Raw materials storage Total: 8.00 8,000 Set ups 1,600 Set ups 18,000 Inspections 8,000 Machine hours 2,400 Materials movements 38,000 100 2,250 800 10.00 2.00 1,200 A further analysis has produced the following indirect production overhead resource required for each product: Activity - Based Resource (Cost driver quantity) Requirement (by product) Order / product: Order 1101 'A' Order 1102 'B' Order 1103 'C' Total Set ups 50 20 30 100 700 500 1,000 Inspections Machine hours 300 200 300 2,200 800 1,400 Materials movements 700 300 400 Task 5: a. Explain 'Activity - Based Costing (ABC) as an alternative to full absorption costing and discuss the potential benefits that ABC might bring to production and information systems of Jackson Ltd Note: Your written explanations should be effectively communicated and should include notes on: . The reasons for the development of ABC The 'Activity - Based' concept . The process of an ABC system development The potential benefits (if any) you feel could be achieved by the introduction of an ABC system for Jackson Ltd 10 Marks b. Recalculate the gross profits (by product an in total) after allocating fixed production overheads to products using an activity-based system 10 Marks The task 5 b. mark include marks allocated to short descriptive notes to workings (