You must answer three questions, using a separate document for each question (all questions of equal weighting/the weighting is noted against the question/sub question). Section A You must answer question one. This question is compulsory. Question 1 PV manufactures three models of HD projectors: Mini, Portable and Home Budgeting information for next year is given below: Model of projector Mini Portable Home Total Sales Total direct material Total direct labour Total production overhead Gross profit 1,080,000 352,000 214,000 1,728,000 548,000 268,000 2,040,000 804,000 332,000 4,848,000 1,704,000 814,000 1,392,000 938,000 Mini 10,000 0.5 Portable 9,000 Production/sales (units) Machine hours per unit Home 8,000 2 PV currently adopts a standard absorption costing system. The production overhead cost is absorbed using the machine hours. Required: 1.1 Calculate the production overhead absorption rate using the machine hours. (5%) 1.2 Calculate the gross profit for each product line. (5%) PV is considering changing to an activity-based costing system. The main activities and their associated cost drivers and overhead cost have been identified as follows: Cost Driver Overhead cost Activity Machining Machine hours 420,000 Set up 480,000 Number of set ups Number of quality inspections Number of shipments Quality inspection Shipping 276,000 216,000 1,392,000 The analysis also revealed the following information: Mini Portable Home 200 600 400 Number of set ups/production runs Quality inspection per production run Number of shipments 10 30 10 7.000 4,000 5,000 The machines are set up for each production run of each model. Required: 1.3 Calculate the gross profit margin for each model of projector using the proposed activity-based costing system (20%) 1.4 Explain why an activity-based costing system may produce more accurate product costs than a traditional absorption costing system. a (10%) 1.5 Explain the possible other benefits to the company of introducing an activity-based costing system. Use the figures calculated in part 1 to illustrate your answer. (10%) (TOTAL 50%)