Activity based costing:

PLEASE GUIDE ME WITH WHAT WORKINGS SHOULD BE DONE SO THAT I CAN WORK THIS QUESTION, help urgently needed! Assume that you are given the following information about a company that makes compact discs and LP records. Compact Discs Records Monthly production 15,000 5,000 Direct material costs Pressing dept ?5.00 ?6.00 Cutting dept ?5.00 ?7.00 Packing dept ?3.00 ?13.00 ?2.00 ?15.00 Direct labour ?5.00 ?7.00 Machine hours Pressing dept 0.6 0.5 Cutting dept 0.6 0.5 Packing dept 0.5 0.3 In addition, the following overheads are incurred: ? Basis of apportionment Production department overheads Pressing dept 25,000 Cutting dept 30,000 Packing dept 16,000 Service department overheads Purchasing 7,000 Direct material costs Production control 5,000 Direct material costs Set-up costs 12,000 Direct material costs Maintenance 3,000 Machine hours Quality control 4,000 Machine hours Required: (a) The company wishes to introduce a pricing system which is 20% mark-up on marginal cost. Calculate the price it should charge for compact discs and records. Outline the disadvantages associated with this approach. (b) The company decides to charge 15% full cost (absorption basis). What will the new price be for the compact discs and records? Outline the disadvantages of the absorption absorption approach in this case. (c) The company decided to continue charging 15% on full cost, but this time they use activity-based costing rather than the conventional absorption approach. Show the new pricing policy and outline the advantages and disadvantages of the new approach. You may find the following information helpful: Activity Cost Driver Purchasing Number of orders Production control Number of components produced Too setting Number of tool changes Maintenance Machine hours Quality control Number of components inspected Pressing Dept Machine hours Cutting Dept Machine hours Packing Dept Machine hours Cost driver Compact discs Records Total Number of orders 200 2,000 2,200 Number of components produced 12,000 50,000 62,000 Number of tool changes 100 200 300 Machine hours 6,000 15,000 21,000 Number of components inspected 4,000 13,000 17,000 Total 22,300 80,200 102,500