Question

MeatFree Ltd is a manufacturer of meat substitute food products. The company produces a vegetarian ready meal called The Sub and two vegetarian, meat replacement compound mixtures, the Veggie Pulled Pork (VPP) and the Veggie Lamb Shank (VLS). There is some concern about the future of the company as market competition is high, and the board of directors are looking at new strategies to increase sales and profitability. According to the absorption costing scheme used by the last management accountant The Sub is making huge losses per unit and the marketing manager has reported that any increase in the selling price of this item will result in a reduction of sales volume. Consequently, it is being deliberated whether or not to stop the manufacture of The Sub and concentrate on the more prosperous production and selling of the VPP and VLS products. You have been recently employed as a management accountant to provide fresh input into the decision- making process from a costing perspective and the following costing information has been provided: Production Information: Product Output Material Direct labour Machine No. of set ups for hours per unit total production per unit per unit The Sub 100 1 1 10kg 4kg VPP 50 5 hours 2 hours 2 hours 3 2 VLS 50 6kg 4 NI Accounting Information: Material is purchased at a cost of £7 per kg Average hourly wage rate £10 1 Factory overhead production costs £ 3,200 5,500 Maintenance Material handling Indirect labour (The Sub only) Production set up Electricity 1,500 2,000 4,500 Marketing Information: Currently all output is sold. Unit selling price £ 150 The Sub VPP 170 VLS 200 Questions: (Round-up calculations to 2 decimal places) 1. Using the information provided in tables 1, 2 & 3 prepare detailed costing analysis, including the expected profit/ loss for each of the 3 components, based on: 1) An absorption costing system (show all calculations and provide an explanation for the absorption rate employed). (11 marks) ii) An activity-based costing system (show all calculations and provid

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