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4 of 5 c) Swiss & Co makes three types of necklace, the Diva (D), the Classic (C) and the Poser (P). A traditional costing
4 of 5 c) Swiss & Co makes three types of necklace, the Diva (D), the Classic (C) and the Poser (P). A traditional costing system is used at present but an Activity-Based Costing (ABC) system is being considered. Details of the three products for a typical period are: Hours per unit Labour hours Machine hours Materials cost Production per unit units Product D 1 20 2 Product C 1 12 1,250 Product P 1 3 25 7,000 1 750 1 Direct labour costs 6 per hour and production overheads are allocated to machine hour basis. The Indirect Costs for the period is 28 per machine hour. Total production Indirect Costs are 654,500 and further analysis shows that these can be divided as follows: Costs relating to set-ups 35% Costs relating to machinery 20% Costs relating to materials handling 15% Costs relating to inspection 30% Total Production Indirect Costs 100% The total activity volumes for each product are: Page 4 of 5 Number of Set-ups Number of inspections Product D Product C Product P Total 75 115 480 670 Number of movements of material 12 21 87 120 150 180 670 1,000 Costs relating to machinery are driven by the number of machine hours. >> Use one decimal point for your calculations D) Calculate the cost per unit for each product using traditional costing. [05 marks) ii) Calculate the cost per unit for each product using ABC principles [25 marks]
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