The following budgeted information relates to Brunti Inc. for the forthcoming period:

Overheads allocated and apportioned to production departments (including service cost centre costs) were to be recovered in product costs as follows:
Machine department at $1.20 per machine hour Assembly department at $0.825 per direct labour hour You ascertain that the above overheads could be reanalysed into ‘cost pools’ as follows:

Required:

(a) Prepare and present profit statements using:
(i) conventional absorption costing.
(ii) activity-based costing.

(b) Comment on why activity-based costing is considered to present a fairer valuation of the product cost per unit.

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Products XYI YZT ABW (000) (000) (000) Sales and production (units) 50 40 30 ($) ($) ($) Selling price (per unit) 45 95 73 Prime cost (per unit) 32 84 65 Hours Hours Hours Machine department 2 5 4 (machine hours per unit) Assembly department 7 3 2 (direct labour hours per unit)