A company produces two products A and B. 900 units of A, and 300 units of B are normally produced and sold each year. Unit information regarding the manufacture of A and B is as follows: Activity Based Costing Overheads are currently allocated on labour hours (labour is a variable cost in this example). The company has a total practical capacity of 15000 labour hours. The company is considering allocating overheads in accordance with ABC. 2 Cost drivers have been identified - Machine hours (practical capacity 16000 hours) and number of batches (practical capacity 120 batches of any size). A requires 10 machine hours per unit and is typically manufactured in batches of 20 units. B requires 20 machine hours per unit and is only manufactured in batch sizes of 5 units. Machine hours have been identified as a cost driver for depreciation, maintenance and electricity, while shipping and quality costs are driven by the number of batches produced. REQUIRED 1. Calculate the unit and total cost for each product under the traditional method and under ABC. Discuss the appropriateness of allocating (a) Depreciation, and (b) Factory rent under ABC. * these costs are considered to be fixed costs, at the company's current production capacity. A company produces two products A and B. 900 units of A, and 300 units of B are normally produced and sold each year. Unit information regarding the manufacture of A and B is as follows: Activity Based Costing Overheads are currently allocated on labour hours (labour is a variable cost in this example). The company has a total practical capacity of 15000 labour hours. The company is considering allocating overheads in accordance with ABC. 2 Cost drivers have been identified - Machine hours (practical capacity 16000 hours) and number of batches (practical capacity 120 batches of any size). A requires 10 machine hours per unit and is typically manufactured in batches of 20 units. B requires 20 machine hours per unit and is only manufactured in batch sizes of 5 units. Machine hours have been identified as a cost driver for depreciation, maintenance and electricity, while shipping and quality costs are driven by the number of batches produced. REQUIRED 1. Calculate the unit and total cost for each product under the traditional method and under ABC. Discuss the appropriateness of allocating (a) Depreciation, and (b) Factory rent under ABC. * these costs are considered to be fixed costs, at the company's current production capacity