GamesRus PLC manufactures three types of electronic game.

These are ‘Dungeons and Druids’, ‘Alien Invader Force’ and ‘Sorcerers’ Revenge’. The factory is set up to produce the games in batches of 1,000, and it plans to manufacture 1 million of each type of game during the year 2009 (i.e. 1,000 batches of 1,000 games each). In each case, the cost unit is a batch of 1,000 games.

The budgeted direct costs of manufacture are as follows:

Direct labour is paid at £8 per hour.
Total production overheads for 2009 are budgeted as follows:

At present the company uses direct labour hours as a base to absorb these production overheads.
The company has started to investigate the possibility of using ABC and has identified some data that could be used to calculate cost driver rates. The following cost driver information is expected for each batch of 1,000 games:

Required:
a For each product, calculate the total production cost for each batch of 1,000 games for each product using traditional absorption costing for the year 2009.
b Calculate the total production cost for each batch of 1,000 games for each product using ABC for the year 2009.
c Briefly discuss the advantages and disadvantages of ABC over traditional absorption costing. Your discussion should include a reference to the ways in which managers could use the cost information produced by ABC more meaningfully.

Transcribed Image Text:

Direct labour hours per batch 3 Product Dungeons and Druids Alien Invader Force Sorcerers' Revenge 35 4 Raw material costs per batch 250 360 270