Reference no: EM132533650

ABC Company deals in manufacturing of four products A, B, C & D. Company has been using traditional costing system to absorb overheads on the basis of labour hours. Newly appointed Finance Manager has suggested to use the activity-based costing mechanism for allocation of overheads.

Information for the products for the current period is as follows:

                                                      Product A                 Product B                 Product C                  Product D

Production and Sales                   20,000                 15,000                 30,000                        35,000
Selling Price Per Unit                      100                      50                      80                               75
Material                                         35                       12                      25                              20
Labour @5 per Hr                            20                       10                        15                            20
Machine Hours per unit                     1                          1                          2                             2
# of Production runs                       20                          25                         20                         15
# of Purchase orders                       5                          10                             20                      15
# of Deliveries                              50                         40                            60                          50

The annual overhead costs are as follows:

Machine Set up costs 640,000

Machine Running cost 825,000

Labour Management 850,000

Procurement costs 300,000

Delivery Cost 260,000

Requirement:

Question a) Calculate the full cost of each product A, B & C using absorption costing.

Question b) Calculate the full cost of each product A, B & C using Activity Based Costing system.