You have recently been appointed as management accountant to Beacon Ltd.

The company manufactures three types of laptops. The company currently absorbs overheads on the basis of machine hours.

The following details relate to the three products for the production month of June 2021.

Product	Dv1	Dv2	Dv3
Output in units	1,200	1,000	1,200
Total direct material cost	£48,000	£50,000	£72,000
Total direct labour cost	£33,600	£21,000	£25,200
Machine hours per unit	8	6	6

The total production overheads for the month were £260,000. The calculation per product using absorption costing is:

	Dv1	Dv2	Dv3
	£	£	£
Material	48,000	50,000	72,000
Labour	33,600	21,000	25,200
Overhead *	109,440	68,400	82,080
Total cost	191,040	139,400	179,280
Cost per unit	159.20	139.40	149.40

*OAR

Total production overheads

260,000.00

= 11.40 per machine hour

Total Machine Hours

22,800.00

You are considering the introduction activity based costing and the following analysis has been conducted:

Each product passes through two machines. The time on each machine is detailed below:

	Dv1	Dv2	Dv3
	Minutes	Minutes	Minutes
Machine X	290	280	200
Machine Y	190	80	160
Total minutes	480	360	360

         

                                                 

The production overheads are already captured by each cost centre. An analysis of the £260,000 by the percentage attributable to each department is detailed below. You determine the associated cost drivers for each department and their use by each product, which are also included in the tables below.

Cost type	Percentage of Total Overhead Cost (%)	Cost Driver
Machine X	32	Machine time
Machine Y	44	Machine time
Set up	10	Number of set ups
Quality Inspection	14	Number of inspections
Total	100

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4. Continued

          The activity level for set ups and inspections for each product is as follows:

	Dv1	Dv2	Dv3	Total
Number of set ups	9,600	8,400	3,800	21,800
Number of inspections	2,200	3,300	1,300	6,800

        Required:

1. Calculate the cost per unit of each product using Activity-Based Costing.

(10 marks)

2. In addition, given that Beacon Ltd aim to achieve a 15% sales margin, calculate the selling prices per unit using both the traditional and ABC costing systems and comment on the results.    

3. The company has an opportunity to lease a machine (machine A) that would serve the same purpose as Machine X. Machine X was originally purchased for £2,000,000 five and a half years ago. At the time of purchase the assumption was that the machine had an estimated useful life of six years with nil residual value and would be depreciated using the straight line method. Depreciation is charged monthly. The machine could be sold for £200,000. The lease costs of the new machine would be £40,000 per month. Recalculate the cost per unit of each product assuming that the company decides to lease machine X. Assume the number of units sold, the selling price per unit calculated using ABC and the time taken on each machine remain the same.

(4 marks)

4. Analyse the impact on Beacon Ltd of leasing machine A.

(3 marks)

It is a full question no additional info