Calculate the production overheads to be absorbed

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A company manufactures two products, L and M, using the same equipment and similar processes. An extract of the production data for these products in one period is shown below.

 

Quantity produced (units)

L

5,000

M

7,000

Direct labour hours per unit

1

2

Machine hours per unit

3

1

Set-ups in the period

10

40

Orders handled in the period

15

60

Overhead costs

Relating to machine activity

 

$ 220,000

Relating to production run set-ups

 

20,000

Relating to handling of orders

 

   45,000

 

 

285,000

Required

Calculate the production overheads to be absorbed by one unit of each of the products using the following costing methods.

(a) A traditional costing approach using a direct labour hour rate to absorb overheads

(b) An activity based costing approach, using suitable cost drivers to trace overheads to products

Reference no: EM13920584

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