XYZ Company produces two fishing boats: Clipper and Sportsman. The company does not have detailed information on the cost incurred to manufacture both products. Recently, the company has incurred significant losses that they find difficult to explain and have decided to implement an activity$-$based costing $($ABC$)$ system to improve its cost evaluations. This year, the unit prices charged to customers was $$24,900$ for Clipper and $$32,900$ for Sportsman.

Production costs for each model of train are as follows:

Clipper $|$ Sportsman

Direct material per unit $|$ $$8,625|$ $$12,750$

Direct labour per unit $|$ $$6,500|$ $$8,200$

The following are the costs incurred during the last month for the company$$s three categories

of overhead costs:

Purchasing $ $6,750,000$

Machine operating $3,750,000$

Production Support $7,500,000$

Total $ $18,000,000$

Currently, overhead costs are applied to each model based on machine hours used. There are

$120,000$ machine hours available each month.

Clipper $|$ Sportsman

Number of units produced by month $|1,900|1,400$

Number of purchase orders by month $|5,750|5,500$

Number of machine hours used to produce $1$ unit $|30|45$

Number of employees $|7,000|5,000$

Required

a$.$ Calculate the cost of producing each boat using the current costing system. $[3$ marks$]$

b$.$ Calculate the cost of producing each boat using the new ABC system. Assume that Purchasing is charged out based on the number of purchase orders, Machine operating costs based on machine hours and production support on number of employees. $[5$ marks$]$

c$.$ The company received an offer to supply $30$ of the Clippers unit at a selling price of $$22,900$ per unit. Should they accept the offer if management requires a $15\%$ return on sales using both Question $3[11$ marks$][$CO$3,$ CO$4,$ CO$5,$ Module $3$: MO$3,$ MO$4,$ MO$5]$

XYZ Company produces two fishing boats: Clipper and Sportsman. The company does not have

detailed information on the cost incurred to manufacture both products. Recently, the

company has incurred significant losses that they find difficult to explain and have decided to

implement an activity$-$based costing $($ABC$)$ system to improve its cost evaluations. This year, the

unit prices charged to customers was $$24,900$ for Clipper and $$32,900$ for Sportsman.

Production costs for each model of train are as follows:

The following are the costs incurred during the last month for the company's three categories

of overhead costs:

Currently, overhead costs are applied to each model based on machine hours used. There are

$120,000$ machine hours available each month.

Required

a$.$ Calculate the cost of producing each boat using the current costing system. $[3$ marks$]$

b$.$ Calculate the cost of producing each boat using the new ABC system. Assume that Purchasing

is charged out based on the number of purchase orders, Machine operating costs based on

machine hours and production support on number of employees. $[5$ marks$]$

c$.$ The company received an offer to supply $30$ of the Clippers unit at a selling price of $$22,900$

per unit. Should they accept the offer if management requires a $15\%$ return on sales using both

the traditional and ABC methods? Explain. $[3$ marks$]$the traditional and ABC methods? Explain. $[3$ marks$]$