3.

Selection and Use of Appropriate Techniques:b) Using Activity Based Costing, the cost per unit for school model and hiker model would be calculated in the following manner:-

Inspection Hours: School Backpacks: 90,000/1000 X 1 =90 hours Hiker Backpacks: 6000/100 X 2 = 120 hours

Activity Cutting Machines Sewing Machines Packaging-- Order related Packaging-- Volume related Orders Inspections Total

Activity Cost 52,000 163,300 8,300 150,000 14,000 8,400

Activity Driver Machine hours Direct labour hours Number of orders Number of items packed Number of orders Hours of Inspections

Cost Driver Unit Demanded School Model 9,000 45,000 450 90,000 450 90 Hiker Model 1,125 4,500 200 6,000 200 120

Total Units Demanded 10,125 49,500 650 96,000 650 210

Driver Rate= Activity Cost/Total Units Demanded 5.14 3.30 12.77 1.56 21.54 40 Total

Activity Cost of School Activity Cost of Hiker Model Model= driver units = driver units demanded X demanded X driver rate driver rate 46222 148455 5746 140625 9692 3600 354340 5778 14845 2554 9375 4308 4800 41660

Model School Model

Total Cost / No. Of units 354340

Cost per unit 3.94

90,000 Hiker Model 41660 6000 6.94

Hence the above calculations show that after allocating costs as per the activities, the cost per unit of School Model with unit volume of 90,000 is less than the cost of the Hiker model having unit volume as 6000. However the profitability analysis of each model will show which option is more profitable than other.

Process Changes: Demand of School Model changes to 85,000 from 90,000. Cutting machine hours changes to 8500 and the number of order changes to 425. Now after making these process changes, new cost per unit is calculated as below: d) Activity Cutting Machines Sewing Machines Packaging-- Order related Packaging-- Volume related Orders Inspections Total Activity Cost 52,000 163,300 8,300 150,000 14,000 8,400 Activity Driver Machine hours Direct labour hours Number of orders Number of items packed Number of orders Hours of Inspections Cost Driver Unit Demanded School Model 8,500 45,000 425 90,000 450 85 Hiker Model 1,125 4,500 200 6,000 200 120 Total Units Demanded 9,625 49,500 625 96,000 650 205

Driver Rate= Activity Cost/Total Units Demanded 5.40 3.30 13.28 1.56 21.54 40.98 TOTAL

Activity Cost of School Model= driver units demanded X driver rate 45922 148455 5644 140625 9692 3483 353821

Activity Cost of Hiker Model = driver units demanded X driver rate 6078 14845 2656 9375 4308 4917 42179

Model School Model

Total Cost / No. Of units 353821 85,000 42179

6000

Cost per unit 4.16

Hiker Model

7.03

a) Inspection Hours

For School backpacks

90,000/1000*1 = 90 hours 6000/100*2 = 120 hours

For Hiker backpacks

b) Inspection Hours

For School backpacks

90,000/8500*1 = 85 hours 6000/100*2 = 120 hours

For Hiker backpacks