Question
(b) Grano Ltd produces three products, A, B and C, all made from the same material. Until now, it has used traditional absorption costing
(b) Grano Ltd produces three products, A, B and C, all made from the same material. Until now, it has used traditional absorption costing to allocate overheads to its products. The company is now considering an activity- based costing system in the hope that it will improve profitability. Information for the three products for the last year is as follows: A B C Production and sales 15,000 12,000 18,000 volumes (units) Selling price per unit TZS 7,500 TZS 12,000 TZS 13,000 Raw material usage 2 3 (kg)per unit Direct labour hours per 0.1 0.15 0.2 unit Machine hours per unit 0.5 Number of productions 16 66 0.7 0.9 12 8 runs per annum Number of purchase 24 28 42 orders per annum Number of deliveries to 48 30 62 retailers per annum The price for raw materials remained constant throughout the year at TZS 1,200 per kg. Similarly, the direct labour hour cost for the whole workforce was TZS 14,800 per hour. The annual overhead costs were as follows: Machine set up costs Machine running costs Procurement costs Required TZS 26,550,000 TZS 66,400,000 TZS 54,320,000 (1) Calculate the full cost per unit for products A, B and C under traditional absorption costing, using direct labour hours as the basis for apportionment (ii) Calculate the full cost per unit of each product using activity-based costing. (8 Marks) (8 Marks)
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