QUESTION 3 (35 MARKS) Wood Limited, a newly established manufacturing company in the Southern Industrial area, manufact

[answerhappygod]

QUESTION 3 (35 MARKS)
Wood Limited, a newly established manufacturing company in the Southern Industrial area, manufactures two
types of Boardroom Tables. One type of these Boardroom tables is sold locally and the other type is exported to Angola. While the designs are identical, the material used is different to cater for the different climatic conditions of the market segments.
The two products are produced with the same equipment and they utilise the same overhead resources. In 2021, the company has budgeted to manufacture 60 000 Boardroom Tables for the local market and 40 000 Boardroom Tables for export to Angola. The manufacturing is done in batches of 1 000 Boardroom Tables
each.
Other details of the company’s activities, inputs and outputs are as follows:
Analysis of overhead costs
Material handling N$ 200 000
Material procurement N$ 40 000
Machine set-up N$ 180 000
Quality control N$ 270 000
Production N$ 610 000
Depreciation N$ 200 000
TOTAL N$ 1 500 000
Analysis of cost drivers, Overhead Cost driver, Local, Export
Material handling, Material movements, 100, 60
Material procurement, Number of orders, 200, 200
Machine set-ups, Number of set-ups / batch, 1, 1
Quality control, Number of inspections, 150, 100.
Depreciation, Machine hours / unit, 3, 5.
Production, Direct labour hours / unit, 0.75, 0.50.
The company management has been using the “traditional costing approach” to allocate overheads between the two products, with direct labour hours as allocation base. They are thinking of applying the Activity-Based Costing System.
REQUIRED: Calculate the overhead cost per unit, using;
3.1 The Traditional Costing Approach 7
3.2 The Activity-Based Costing Approach 28
TOTAL MARKS FOR QUESTION 4, 35 marks