Intermediate: Calculation of ABC product costs and a discussion of the usefulness of ABC Trimake Limited makes three main products, using broadly the same production methods and equip¬ ment for each. A conventional product costing system is used at present, although an activity- based costing (ABC) system is being considered. Details of the three products for a typical period are:

Direct labour costs £6 per hour and production overheads are absorbed on a machine hour basis. The rate for the period is £28 per machine hour, (a)You are required to calculate the cost per unit for each product using conventional methods. Further analysis shows that the total of production overheads can be divided as follows:

You are required

(b) to calculate the cost per unit for each product using ABC principles; (15 marks)

(c) to comment on the reasons for any differences in the costs in your answers to

(a) and (b).

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Hours per unit Materials Volumes per Labour Machine unit hours hours Units Product X Product Y 1 1277 12 1 Product Z 1 3 222 20 750 12 1250 25 7000