=+6-35 KKK Activity-based costing, activity area cost-driver rates, product cross-subsidisation OBJECTIVES 3, 7 Perfect Spuds (PS) operates at capacity and processes potatoes into potato cuts at its highly automated plant. It sells potatoes to the retail consumer market and to the institutional market, which includes hospitals, cafeterias and university dormitories.

PS’s simple costing system has a single direct cost category (direct materials, which are the raw potatoes) and a single indirect cost pool (production support). Support costs are allocated on the basis of kilograms of potato cuts processed. Support costs include packaging materials. The 2013 total actual costs for producing 1000000 kilograms of potato cuts (900000 for the retail market and 100000 for the institutional market) are:

Direct materials used $150 000 Production support $983 000 The simple costing system does not distinguish between potato cuts produced for the retail and the institutional markets.