A company sells a product at Rs 120 per unit. The production cost is Rs. 90 per unit. The product is sold to three main customers:

Sales to X = 1000 units p.a

Y = 1000 units p.a

Z = 1000 units p.a

Non-production OH: Rs

Quality Inspection 18000 p.a

Delivery 15000 p.a

After sales service 6000 p.a

39000

Activity volumes have been identified as follows:

X Y Z Total

No of Inspections 500 50 50 600

No of Deliveries 94 4 2 100

After sales visits 20 6 4 30

The company at present allocates non-production overheads on the basis of unit sales.

Required:

1. Determine the cost and profit per unit, as well as the total profits made from sales to X, Y and Z, using (a) traditional costing and (b) Activity Based Costing (ABC).
2. Write a note to the management with your recommendations on which costing method to use and why?