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PetLove Limited manufactures two products dog shampoo and horse shampoo. PetLove has always adopted a cost-based pricing model in which it applies a 50% mark-up. After experiencing a recent decline in the demand for PetLove's dog shampoo, a new CEO named Jeff Anderson, has been appointed. Mr. Jeff has suggested that in order to become more competitive, the entity should discontinue assigning overheads based on labour hours and rather opt for activity-based costing.

The following information is available for overheads for the current financial year:

overheads	Annual Cost (R)	Cost driver
Property cost	700 000	Machine hours
Quality control cost	300 000	Inspections
Production setup cost	500 000	Machine set ups

The following information is available for each product for the current financial year:

Details	Dog Shampoo	Horse Shampoo
Annual demand	20 000	5 000
Total direct material cost for annual production (Rands)	400 000	80 000
Total direct labour cost for annual demand (Rands)	200 000	250 000
Labour hours for annual demand	4 000	6 000
Machine hours required for annual demand	6 000	8 000
Number of inspections required for annual demand	40	20
Number of machine set ups for annual demand	30	20

Mr. Jeff is also concerned about the environmental impact the entity may be causing. There is a lot of waste generated by the plastic bottles which are produced for the shampoo and some of the liquid waste for the shampoo is disposed of in the nearby river.

Required:

1. Calculate the total cost of dog shampoo of PetLove Limited under activity-based costing and the original absorption costing method.

2.Interpret the results of the calculation in question 1

3.Calculate PetLove Limiteds current selling price per bottle of shampoo using its original absorption costing method.

4. Suppose that Mr. Jeff wishes to measure the social and environmental costs of the entity. Discuss three (3) reasons why this may be difficult.

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