Assume that ABC Company produces and sells three types of products: P1, P2, and P3. The company uses ABC system. The three major activities and the related cost drivers for indirect manufacturing costs are presented below:

Activity

Cost Driver

Costs (in Birr)

Quantity of cost driver

Cost Driver Rate

Total Cost per activity

Materials handling

Direct materials costs

8000

200,000

0.04

+200000 X 0.04

Engineering

Engineering change notice

20,000

20

100

Power

Kilowatt hours

16,000

400,000

0.04

Total

44,000

Cost pool total /cost driver = cost driver rate

Direct costs and cost driver activity for each product for a recent month are as follows:

P1

P2

P3

Direct materials costs

25,000

50,000

125,000

Direct labor costs

4,000

1,000

3,000

Kilowatt hours

50,000

200,000

150,000

Engineering change notice

13

5

2

Production in units

15,000

10,000

20,000

Required:

Using Activity-based costing method, compute:

2. cost driver rate for each activity
4. indirect manufacturing overhead cost allocated to each product
6. unit cost for each product