Amalia Ltd currently manufactures and sells four products. Details of these products and relevant information are given below, for one period. Product P1 P2 P3 P4 Output (Unit) 240 200 160 240 Machine hours (per unit) 8 6 4 6 Cost per unit Direct material 80 100 60 20 Direct labour 56 42 28 42 Production overheads Indirect material 20,860 Indirect labour 10,500 Rent 7,200 Insurance 4,200 Depreciation 9,240 Production overheads are currently absorbed by using a plant-wide rate per machine hour.

Required: (a) You have been asked by the financial director to calculate the cost per unit for each product. All overhead costs are absorbed on a machine hour basis (show your workings as full as possible).

(b) Compare the traditional absorption costing approach with Activity-based costing, and discuss the reasons why Activity-based costing is considered to present a fairer valuation of the unit product cost.

Amalia Ltd currently manufactures and sells four products. Details of these products and relevant information are given below, for one period. Product Output (Unit) Machine hours (per unit) P1 240 8 P2 200 6 P3 160 4 P4 240 6 Cost per unit Direct material Direct labour 80 56 100 42 60 28 20 42 Production overheads Indirect material Indirect labour Rent Insurance Depreciation 20,860 10,500 7,200 4,200 9,240 Production overheads are currently absorbed by using a plant-wide rate per machine hour. Required: (a) You have been asked by the financial director to calculate the cost per unit for each product. All overhead costs are absorbed on a machine hour basis (show your workings as full as possible). (b) Compare the traditional absorption costing approach with Activity-based costing, and discuss the reasons why Activity-based costing is considered to present a fairer valuation of the unit product cost