CASE NO #01 Activity Base Costing (ABC) Gulf Mining LLC produces three diferent products and sells them in bulk to smaller retailers. Its managers are concerned that the company's profit is not as high as its competitors. They believe they fall in profits could be caused due to the company's uncompetitive selling price(s), for one or more product, and losses on other products. Details of the company's costs and selling prices are as follows;

Products Face-

Pack Hand-

gel Hair-gel

OMR OMR OMR

Selling Price 90 120 140

Direct Costs Labour 10 10 20

Direct Material Aqua (Water) 16

Total Direct Cost 24 28 60 Uni

ts produced 2000 3000 1600

Labour hours 2 hours per unit 2

hours per unit 3 hours per unit C

urrently the company uses the traditional method of allocating indirect overheads but is considering using the ABC method for increasing the accuracy. The company's indirect overheads are as follows:

Details OMR Depreciation 4200

Purchasing Expenses 2400

Direct Material - Aqua (Water) delivery inspection costs 800

Direct Material - other delivery inspection costs 1800

Set-up costs 1632

Canteen expenses 5000

Activities associated with the overheads are: Page 5 of 6 Financial Management Financial Management-1

/Assignment BSAC2102/BAFI2109/2110 Semester-Spring-2022-23 Face-gel Hand-gel Hair-gel Number of suppliers 8 10 6 Component deliveries per month 6 6 4 Production runs per month 16 20 12 No. of employees 12 18 10 Value of machinery 2000 3000 1000 Required:

a) Calculate the profit per unit for the three products based on the company's current labour hours based overhead method.

b) Calculate the profit per unit for the three products using the principles of ABC

c) Comment on the comparative overhead cost per unit for the two products under ABC, and the comparative total costs per unit under traditional costing and ABC and Explain your reasons for choosing the bases of overhead allocation