(a) Calculate the total costs for each product if all overhead costs are absorbed on a machine hour basis;

(b) Calculate the total costs for each product, using activity based costing;

(c) Calculate and list the unit product costs from your figures in (a) and (b) above, to show the differences and to comment briefly on any conclusions which may be drawn. Which of these could have pricing and profit implications?

(d) Discuss the differences between direct costs and indirect costs.

THANKS FOR HELP :)

1. You decide to apply the principles of activity based costing to the four products currently made and sold by the company you are employed by. Details of the four products and relevant information are set out below for one period: Product Output in units A B 120 100 D 120 80 Costs per unit: Direct material Direct labour 40 28 50 21 30 14 60 21 Machine hours (per unit) 4 2 3 The four products are similar and are generally produced in production runs of 20 units and sold in batches of 10 units. The production overheads are currently absorbed by using a machine hour rate, and the total of the production overhead for the period has been analysed as follows: Machine department costs (rent, business rates supervision etc) Set-up costs Stores receiving Inspection/ quality control Materials handling and dispatch 10,430 5,250 3,600 2,100 4,620 You have ascertained that the cost drivers' to be used are as listed below for the overhead costs shown: Cost Machine department costs Set up costs Stores receiving Inspection/ quality control Materials handling and dispatch Cost Driver Machine hours Number of production runs Requisitions raised Number of production runs Orders executed The number of requisitions raised on the stores was 20 for each product and the number of orders executed were 42, each order being for a batch of 10 of a product