Accounting for Decision Making

Question 1
Horn Products Ltd manufactures two types of perfumes – Ladies and
Men. Both perfumes are produced using the same equipment and
similar processes. The following budgeted data has been obtained for
the year ended 31 December 2019.
[Data in table attached]
Required:
Write a brief report to the Managing Director of Horn Products Ltd. This
report should have an introduction, body and conclusion.
(Maximum word limit: 500 words)
This report should cover the following areas:
• Explain how an activity-based costing (ABC) system differs from a
traditional absorption costing system. (5 marks)
• Calculate the unit costs for each type of perfume using:
a. The traditional costing method. (10 marks)
b. The proposed activity-based costing approach. (15 marks)
• Discuss your results in (a) and (b) above. (5 marks)
• Explain the advantages and disadvantages of using ABC.
(10 marks)
• Discuss the potential difficulties the company might face in
changing to ABC. (5 marks)