You have recently been appointed as management accountant to Bragg Ltd. The company manufactures three types of printers. The following details relate to the three products for the production month of June 21321. Product Laser Dot Matrix Ink Jet Output in units l] 51313 53D Total direct material cost 24,003 251 35,331] Total direct labour cost 15,303 Ell5 12,531] Machine hours per unit 4 3 3 The company currently absorbs overheads on the basis of machine hours. The total production overheads for the month were 13l. The product cost calculated using absorption costing is as follows: Laser Dot Matrix Ink Jet E Material 24,4355 25,t}t} 35,1303 Labour 16,3tl 13,554] 12,3133 Overhead 54 T44 34 215 41 1353 Total cost 95 544 53 T15 33 353 Cost per unit 159.24 139.43 143.43 Overhead Absorption Rate: Total production ovemeads 130 {int} = 22.31 per machine hour Total Machine Hours 5,Tt][l* *total machine hours (x4)+[5l]x3}+{x3] You are considering the introduction of activity based costing and observe that the production overheads are already captured by each cost centre. An analysis of the 135,335 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 table below. You have been advised that each product passes through two machines. The time taken on each machine is detailed below: Laser Dot Matrix Ink Jet Minutes Minutes Minutes Machine A 145 14t] 155 Machine E E E E Total minutes w E m Cost type Percentage of Total Cost Driver Overhead Cost {'34:} Machine A 32 Machine time Machine El 44 Machine time Setup 113 Number of set ups IDuality Inspection E N umber of inspections Total 1 t] 1 (continued) Activity level for each product Laser Dot Matrix Ink Jet Total Number of set ups 4,800 4,200 1,900 10,900 Number of inspections 1, 100 1,650 650 3,400 Required: Note: all calculations can be shown to 2 decimal places a) Calculate the cost per unit of each product using Activity-Based Costing. (10 marks) b) In addition given that Bragg Lid 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 marks) c) The company has an opportunity to lease a machine (machine Z) that would serve the same purpose as Machine A. Machine A was originally purchased for $1,000,000 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 f100,000. The lease costs of the new machine would be E.20,000 per month. Recalculate the cost per unit of each product assuming that the company decides to lease machine Z. 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) d) Analyse the impact to Bragg Lid of leasing machine Z
