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Bybel Co manufactures three products, XX, YY and ZZ. The products are sold into a competitive market, and customers are relatively price sensitive as the price of each product can significantly affect their buying behaviours. At the same time, Bybel is under pressure to reduce costs and improve profitability because competitive rivalry in the industry has limited profits and lead to competitive moves, including price cutting and a burden of spending on product improvements and innovation. Each product uses the same materials, but in different quantities, and the same type of direct labour. For many years, the company has been using full absorption costing and absorbing overheads on the basis of direct labour hours. Selling prices are then determined using cost-plus pricing. This is common within this industry, with most competitors applying a standard mark-up. Budgeted production and sales volumes for XX, YY and ZZ for the next year are 3,500 units, 4,800 units and 780 units respectively. The budgeted direct costs of the three products are shown below; XX YY ZZ Direct Materials 250.00 260.00 198.00 Direct Labour @ £22 per hour 330.00 330.00 330.00 In the next year, Bybel Co also expects to incur indirect production costs and these are analyzed as follows; Activities; £ Perform Quality Inspections 5,656,500 Number of Quality Inspections Implement Product Design Changes 2,514,000 Number of Design Change Requests Operate Machinery 1,508,400 Number of Machine Hours Plant Management and Security 2,891,100 Number of Units Produced Question 2 continues on the next page. 5R6Z0041_2021_R Page 7/11 Question 2 continued. The following additional data relates to each product; Product Product Product XX YY ZZ Batch size (units) 50 80 40 Number of Quality Inspections per Batch 1 4 1 Number of Design Changes in total 20.0 27.5 4.5 Machine hours per unit 15.0 12.5 14.0 The finance director has suggested using activity-based tools instead of full absorption costing, since this will dramatically improve the profitability of the organization. Required; (a) Calculate the budgeted full production cost per unit of each product using Bybel Co’s current method of absorption costing. All workings should be to two decimal places. (3 marks) (b) Calculate the budgeted full production cost per unit of each product using activity-based costing. All workings should be to two decimal places. (13 marks) (c) Using the numbers that you have calculated in parts (a) and (b), evaluate the change in the full production cost per unit of each product caused by a move to activity based costing compared to using absorption costing. Within your response you should seek to explain in detail why the changes to each of the full production costs per unit have occurred. (9 marks) Total 25 marks