Ontario PLC manufactures three products, X, Y and Z. The following table includes information relating to the manufacture of each product

The draft production overhead budget for next year contains the following departmentalbudgets:

The budget absorbs these overheads into production using a budgeted machine hour rate of £18.68 per hour. This is budgeted to produce overhead costs per product as follows: X = £4.67, Y = £4.67, Z = £9.34. However, it has been proposed that the overhead budget be recalculated using activity-based costing. The following information has been provided for this purpose:

(a) Recalculate the production overhead budget per product using activity-based costing, tracing costs to products by cost drivers.

(b) Discuss the assertion that activity-based costing is likely to produce a fairer unit product cost than total absorption costing.

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Material cost per Direct labour per Machine time per Labour cost Budgeted unit unit unit per unit Product output (hours) (hours) X 6000 15 0.25 0.25 2 Y 8500 24 0.4 0.25 2 Z 4800 18 0.4 0.50 4