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M/s. Gharib LLC produces five products, ACE, BEE, CEZ, DIV and EVA, all from the same material. Until now, it has used traditional absorption
M/s. Gharib LLC produces five products, ACE, BEE, CEZ, DIV and EVA, all from the same material. Until now, it has used traditional absorption costing to allocate overheads to its products. The company is now considering an activity-based costing in the hope that it will improve profitability. Information for the three products for the last year is as follows Particu lars Production and Sales Volumes (Units) Selling Price Per Unit (RO) Raw Material Usage (Kg) Per Unit Direct Labor Hours Per Unit Machine Hours Per Unit No of Production Runs Per Annum No of Purchase Orders Per Annum No of Deliveries to Retailers Per Annum ACE BEE CEZ DIV Particulars RO Machine set up costs 66,666 Machine running costs 77,777 Procurement costs 55,555 Delivery costs 44,444 20,000 8.5 25 0.15 0.5 32 48 96 18,000 25,000 44,000 11.5 12.5 13.5 3.5 3.5 0.15 0.20 0.7 0.9 16 84 124 24 56 60 4.5 0.25 0.9 18 80 80 EVA Required with appropriate formulas: Calculate the full cost per unit for products ACE, BEE, CEZ, DIV and EVA under traditional absorption, using direct labor hours as the basis for apportionment. Calculate the full cost per unit of each product using activity-based costing. Give your comments. 30,000 14.5 4.5 0.25 0.10 The price for raw material remained constant throughout the year at RO 3.750 per Kg. Similarly, the direct labor costs for the who workforce was RO 23.250 per hour. The .annual overhead costs were as follows 20 90 100
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