Divine Grace Ltd (DG Ltd) is a fairly new company at the leading edge of paint-spraying technology. The company recently received 3 substantial orders from Alpha Manufacturing Ltd (A), Beta Manufacturing Ltd (B) and Gamma Manufacturing Ltd (G). You are given the following details:
\begin{tabular}{|c|c|c|c|c|c|c|}
\hline & A & B & G & Activity & Cost driver & Cost \\
\hline Coat of paint per unit & 7 & 6 & 5 & Paint stirring and quality control & batches of paint & £ 24,081 \\
\hline Litres of paint per unit & 7.6 & 8.6 & 6.3 & Electricity & coats of paint & £ 104,700 \\
\hline Units sprayed & 5,400 & 4,360 & 3,600 & Filling of spraying machines & litres of paint & 64,914 \\
\hline Batches of paint required & 27 & 20 & 40 & & & \\
\hline Machine attendant time (mins) per unit & 30 & 45 & 75 & & & \\
\hline Cost of paint per unit & £ 15.20 & £ 11.18 & £ 18.90 & & & \\
\hline
\end{tabular}
Because the products ordered are in different shapes and sizes, different quantities of paint are needed. Paint is delivered in batches of various sizes, depending upon the finish required. Machine attendants are paid \( £ 5.30 \) per hour. Divine Grace Ltd plans to charge \( £ 40, £ 35 \) and £45 respectively for each unit sprayed.
Required:
1. Using the excel template provided:
(12 marks)
a. Calculate the unit and total cost to DG Ltd of the products sprayed using labourbased absorption costing
b. Determine the unit and total profit
2. Using the excel template provided:
(28.5 marks)
a. Calculate the unit and total cost to DG Ltd of the products sprayed using ABC
b. Determine the unit and total profit
3. At a board meeting there was some concern over the introduction of activity-based costing. The chairman, Mrs Rosalie Potter argued: 'I 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 difference to me. ' Discuss the point made by the chairman.
(9.5 marks)
