Write the report as asked in question (b) part. make sure all parts of the question are addressed. The managing director argued:'/ believe that activity-based costing would be an improve-ment, but it still has its problems. For instance, if we carry out and activity many timessurely, we get better at it and costs fall rather than maintain constant. Similarly, somecosts are fixed and do not vary either with labour hours or any other cost driver."The chairman argued:'/ cannot see the problem. The overall profit for the company is thesame no matter which method of allocating overheads we use. It seems to make no dif-ference to me.Required(a) Calculate the total profit on each of Frantic plc three types of product using eachof the following methods to attribute overheads:) The existing method based upon labour hours.(ii) Activity based costing.(b) Write a report to the directors of Frantic Plc, as its management accountant. Thereport should:(1) Evaluate the labour hours and the activity-based costing methods in thecircumstances of Frantic Plc; and(ii) Examine the implications of activity-based costing for Frantic Plc, and inso doing evaluate the issues raised by each of the directors.[Maximum Word Count 750 Words] ANSWER ALL PARTS OF THIS QUESTION:a production run of a different type of motorcycle.Question:Purchase orders- the number of purchase orders.The annual cost driver volumes relating to each activity and for each type of motorcycleare as follow:Frantic Plc assembles three types of motorcycle at the same factory: the 50cc Sunshine;the 250cc Roadster and the 1000cc Fireball. It sells the motorcycles throughout the world.In response to market pressures Frantic Plc has invested heavily in new manufacturingtechnology in recent years and, as a result, has significantly reduced the size of its work-force.Number of deliveriesNumber of set-upsNumber ofpurchaseTo retailersordersHistorically, the company has allocated all overhead costs using total direct labour hoursbut is now considering introducing Activity Based Costing (ABC). Frantic Plc's accountanthas produced the following analysis.Sunshine10035400Roadster8040300Annual OutputAnnual direct labourSelling PriceRawmaterialFireball7025100(units)hours(£ per unit)cost(£per unit)The annual overhead costs relating to these activities are as follows:Sunshine2,000200,0004,000400Deliveries to retailersSet-up costsPurchase orders2,400,0006,000,0003,600,000Roadster1,600220,0006,000600Fireball40080,0008,000900All direct labour is paid at £5 per hour. The company holds no stocks.At the board meeting there was some concern over the introduction of activity-basedcosting.The three cost drivers that generate overheads are:Deliveries to retailers- the number of deliveries of motorcycles to retail showroomsThe finance director argued:' / very much doubt whether selling the Fireball is viable butI am not convinced that activity-based costing would tell us any more than the use oflabour hours in assessing the viability of each product.-- the number of times the assembly line process is re-set toSet-upsaccommodate

SOLUTION-B I- REPORT OF EVALUATION OF LABOUR HOURS AND ACTIVITY BASED COSTING TO THE DIRECTOR OF…

The managing director argued:" I believe that activity-based costing would be an improve- ment, but it still has its problems. For instance, if we carry out and activity many times surely, we get better at it and costs fall rather than maintain constant. Similarly, some costs are fixed and do not vary either with labour hours or any other cost driver. The chairman argued:'/ cannot see the problem. The overall profit for the company is the same no matter which method of allocating overheads we use. It seems to make no dif- ference to me.' Required (a) Calculate the total profit on each of Frantic plc three types of product using each of the following methods to attribute overheads: (i) The existing method based upon labour hours. (ii) Activity based costing.

The managing director argued:" I believe that activity-based costing would be an improve- ment, but it still has its problems. For instance, if we carry out and activity many times surely, we get better at it and costs fall rather than maintain constant. Similarly, some costs are fixed and do not vary either with labour hours or any other cost driver. The chairman argued:'/ cannot see the problem. The overall profit for the company is the same no matter which method of allocating overheads we use. It seems to make no dif- ference to me.' Required (a) Calculate the total profit on each of Frantic plc three types of product using each of the following methods to attribute overheads: (i) The existing method based upon labour hours. (ii) Activity based costing.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4TP: Akimotos Bicycle Co assembles three types of bicycles: Charger, Sublime, Kidde. Due to their...

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