3. Question 3 [30 marks] The Warren company manufactures three products at its Leicester factory. Karen, the managing director, is concerned that the way the products are costed is misleading as to whether or not they are profitable. As the products are independent there is an option to cease the product of a product if it is beneficial to the company. Direct labour hour cost is 17.50 per hour and production overheads are absorbed in the assembly department based on labour hours and the machining department based on machine hours, both at pre-determined overhead rates. Budgeted overhead spend in the assembly department for the period was 500,000 and for the machining department was 150,000. Required: a) Calculate the departmental overhead absorption rates using the traditional overhead absorption method. How much overhead will be allocated to product Daisy using this traditional method? [4 marks] The following activity volumes are associated with the products for the period: Required: b) Calculate the cost per unit for the product Daisy using ABC principles. [13 marks] c) Compare and contrast traditional methods of accounting for overheads with activitybased costing. Include in your discussion a comparison for product Daisy using your answers from parts a and b above. [13 marks] [Total 30 marks) Total paper 100 marks Analysis has shown that the total production overheads of 650,000 can be divided as follows