Calculate the total profit from each of the three products using The existing direct labour hours method.

Vinay Pic produces three grades of their products at the same factory: the Standard: Deluxe and Super. The three grades are sold worldwide Up to now, the company has absorbed production overheads to the three products on the basis of direct labour hours, but the introduction of activity based costing is being seriously considered. The management accountant has produced the following analysis. Product Annual output Annual Direct Selling price Direct Material (units) Labour hours per unit cost per unit LE KE Standard 4,000 400.000 8.000 800 Deluxe 3.200 440,000 7.000 1.200 Super 800 160,000 16.000 1.800 The annual overhead costs to be absorbed to the three products are as follows: E Delivery costs to customers 4.800.000 Set-up costs 12.000.000 Purchase order costs 7.200.000 Overhead costs are driven by the following Deliveries to customers - The number of deliveries of products to customers' warehouse Set-ups - The number of times the assembly line process is re-set to accommodate a production run of each of the three products. Purchase orders - The number of purchase orders The annual cost driver volumes relating to each activity and for each product are as follows: Product Number of Number of set-ups Number of customer Purchase Orders deliveries Standard 200 70 800 Deluxe 160 600 Super 140 50 200 All direct workers are paid at a hourly rate of E 12. The company holds no stock of direct materials, work in progress or finished goods. Required: a) Calculate the total profit from each of the three products using the following overhead absorption methods. The existing direct labour hours method Activity Based Costing method. (10 Marks) (20 Marks) b) Outline the advantages and disadvantages of traditional method of costing used in a) compared to Activity Based Costing, which method do you recommend and why? (20 Marks)