QUESTION 3 Kano Breweries and Beverages Plc (KBB Plc) is a publicly listed company on the Nigerian Exchange Group (NGX). The company manufactures and distributes three product lines: Millet Beer, Sorghum Stout, and Non-Alcoholic Malt. The company's Chief Financial Officer (CFO), Mrs. Fatima Bello, is reviewing cost data for management reporting purposes for the half-year ended 30 June 2024. The following data has been extracted from the company's accounting records: Production Activity Levels and Costs for the past six months: | Month | Units Produced | Total Overhead Cost (N) | |-------|---------------|-------------------------| | January | 120,000 | 9,800,000 | | February | 95,000 | 8,525,000 | | March | 140,000 | 10,800,000 | | April | 75,000 | 7,475,000 | | May | 160,000 | 11,800,000 | | June | 85,000 | 7,975,000 | Additional information: (i) KBB Plc uses a single overhead absorption rate based on units produced. (ii) The company is considering a special order from the Federal Government of Nigeria for 50,000 units of Non-Alcoholic Malt at a price of N65 per unit. The variable cost per unit of Non-Alcoholic Malt is N48 per unit. The special order would not affect existing sales. (iii) The CFO is also concerned about the classification of the following specific costs: - Depreciation of bottling plant (reducing balance method) - Annual factory insurance premium - Overtime premium paid to direct workers due to a rush order - Cost of quality control inspection of every 500th unit produced - Salary of the factory canteen supervisor Required: (a) Using the High-Low Method, determine the fixed and variable components of KBB Plc's total overhead cost. Present a cost equation in the form: Total Cost = Fixed Cost + (Variable Cost per Unit x Activity Level). (8 marks) (b) Using your answer in (a), forecast the total overhead cost if KBB Plc produces 175,000 units in July 2024. State ONE assumption and ONE limitation of the High-Low Method that Mrs. Bello should be aware of when using this forecast. (6 marks) (c) Evaluate whether KBB Plc should accept the special order from the Federal Government of Nigeria. Support your recommendation with a relevant financial analysis using marginal costing principles. (6 marks) (d) For each of the five specific costs listed in Additional Information (iii), state (i) whether it is fixed, variable, or semi-variable; and (ii) whether it is a direct cost or an indirect (overhead) cost, giving a brief reason for each classification. (10 marks) Total: 30 marks