Reference no: EM131719808

A company produces four products, details are provided below:

Product	A	B	C	D
Output in units	120	100	80	120
Costs per unit:	£	£	£	£
Direct Materials	40	50	30	60
Direct Labour	28	21	14	21
Machine hours per unit:	4	3	2	3

The four products are usually produced in production runs of 20 units and sold in batches of 10 units.

The production overhead is currently absorbed by using a machine hour rate and the total of the production overhead for the period has been analysed as follows:

	£
Machine department costs (rent, business rates, depreciation and supervision)	10430
Set up costs	5250
Stores receiving costs	3600
Inspection/ Quality control costs	2100
Materials handling and dispatch	4620

You have ascertained the following cost drivers

Set up costs	No. of production runs
Stores receiving	Requisitions raised
Inspection/Quality control	No. of production runs
Materials handling and dispatch	Orders executed

The number of requisitions raised on the stores was 20 for each product and the number of orders executed was 42, each order being for a batch of 10 of a product.

Required:

a. Calculate the total costs for each product if overhead costs are absorbed on a machine hour basis.

b. Calculate the total costs for each product using an activity based costing approach.

c. Show any differences in the calculations and comment upon the implications.