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MedTech Ubuntu (MDU) is a South African medical technology manufacturer producing portable diagnostic screening devices used in rural clinics and public hospitals across Sub-Saharan Africa.
At the 2026 strategic planning meeting, the Marketing Director of MDU expressed concern about the reported profitability of the VitaScan Pro product line. She questioned whether the current method of allocating fixed manufacturing overheads (FMO) fairly reflects the actual consumption of resources by each product.
She stated:
“HealthLite monitors are produced in much higher volumes than VitaScan Pro. It does not seem reasonable that VitaScan Pro absorbs such a large portion of fixed overheads when HealthLite is manufactured in far greater quantities.”
The management accountant then recommended a review of the costing system. You were consulted as an expert in -Based Costing (ABC) to reassess how fixed manufacturing overheads should be allocated.
Production Plan for 2026
· VitaScan Pro units produced: 24 000
· HealthLite monitor units produced: 48 000
· Total budgeted fixed manufacturing overheads (FMO): R12 600 000
An analysis of the underlying activities for the upcoming 2026 financial year identified the following relationships between the total budgeted FMO of R12 600 000
Activity
|
VitaScan Pro
|
HealthLite
|
Total Allocation of FMO
R
|
Precision assembly and calibration
|
7minutes per unit
|
3 minutes per unit
|
5 670 000
|
Equipment reconfiguration and system adjustments
|
1 setup per
1 500 units
|
1 setup per 2500 units
|
3 780 000
|
Regulatory compliance and clinical validation testing
|
1 validation test on every 5th unit manufactured
|
1 validation test on every 8th unit manufactured
|
3 150 000
|
The number of equipment reconfiguration and system adjustments allocated to VitaScan Pro is _________.