Cabal makes and sells two product, Plus and Doubleplus. The direct costs of production are $12 for one unit of Plus and $24 per unit of Doubleplus.

Information relating to annual production and sales is as follows:

		Plus	Doubleplus
Annual production and sales		24,000 units	24,000 units
Direct labour hours per unit		1	1.5
Number of orders		10	140
Number of batches		12	240
Number of set-ups per batch		1	3
Special parts per unit		1	4
Information relating to annual production and sales is as follows:
	Cost driver		Annual cost
			$
Set-up costs	Number of setups	73,200
Special parts handling	Number of special parts	60,000
Other materials handling	Number of batches	63,000
Order handling	Number of orders	19,800
Other overheads			216,000
Total			432,000

Other overhead costs do not have an identifiable cost driver, and in an ABC system, these overheads would be recovered on a direct labour hours basis.

(a)Calculate the production cost per unit of plus and of doubleplus if the company uses traditional absorption costing and the overheads are recovered on a direct labour hour basis.

(b)Calculate the production cost per unit of plus and of doubleplus if the company uses ABC.

(c)Comment on the reasons for the differences in the production cost per unit between the two methods.

(d)What are the implications for management of using an ABC system instead of an absorption costing system.