The module is cost management accounting

Question 3 (26) A company produces three models of sailboats for sale to the retail market. The company operates a standard absorption costing system. Budgeted information for the next year is given below: Model of sailboat Superior Deluxe Ultra Total Sales R54 000 000 R86 400 000 R102 000 000 R242 400 000 Less: Direct material (R17 600 000) (R27 400 000) (R40 200 000) (R85 200 000) Direct labour (R10 700 000) (R13 400 000) (R16 600 000) (R40 700 000) Production overheads (R69 600 000) Gross profit R46 900 000 Production/sales Machine hours per sailboat Superior 1 000 100 Deluxe 1 200 200 Ultra 800 300 Total 3 000 600 The production overhead cost is absorbed using the machine hour rate. The company is considering changing to an activity-based costing (ABC) system. The main activities and their associated cost drivers and overhead costs have been identified as follows: Activity Cost driver Production overhead cost Machining Machine hours R13 920 000 Set-up Number of set-ups R23 920 000 Quality inspection Number of quality inspections R14 140 000 Stores receiving Number of component deliveries R6 840 000 Store issues Number of issues from stores R10 780 000 R69 600 000 4 The analysis also revealed the following information: Superior Deluxe Budgeted production (number of sailboats) 1 000 1 200 Sailboats per production run 5 Quality inspections per production run 20 Number of component deliveries 500 600 Number of issues from stores 4 000 5 000 The machines are set up for each production run of each model. The cost accountant calculated the following activity cost driver usage: Ultra 800 2 30 800 7 000 10 Superior Deluxe Cost driver: Machine hours Number of set-ups Number of quality inspections Number of component deliveries Number of issues from stores (1 000 x 100) (1 000/5) (200 x 10) 100 000 (1 200 x 200) 200 (1 200/4) 2 000 (300 x 20) 500 4 000 240 000 300 6 000 600 5 000 Required: Show all calculations. Calculate the gross profit of each model of the sailboats using the proposed activity-based costing (ABC) system