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1 The ABC Company manufactures two products, Product Alpha and Product Beta. Both are produced in a very labour-intensive environment and use similar processes. Alpha
1 The ABC Company manufactures two products, Product Alpha and Product Beta. Both are produced in a very labour-intensive environment and use similar processes. Alpha and Beta differ by volume. Beta is a high-volume product, while Alpha is a low-volume product. Details of product inputs, outputs and the costs of activities are as follows:
Alpha Beta
Direct labour hours/unit.
Alpha 5
Beta 5
Annual output (units)
Alpha 1,200
Beta 12,000
Number of purchase orders
Alpha 85
Beta 75 total 160
Number of set-ups
Alpha 60
Beta 40 Total 100
Fixed overhead costs amount to a total of $420,000 and have been analysed as follows:
Volume-related $100 000
Purchasing related $145 000
Set-up related $175 000
Using a traditional method of overhead absorption based on labour hours, what is the overhead cost per unit for each unit of product Beta?
A $6.36
B $22.75
C $31.80
D $122.55
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