Coaster Companyproduces two products, P1 and P2, both 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. Information for the two products for the last year is as follows:

P1

P2

Production and sales volumes (units)

60,000

100,000

Selling price per unit

100

100

Raw material usage (kg) per unit

8

12

Direct labour hours per unit

1.2

0.88

Machine hours per unit

4

1.6

Number of production set ups per annum

100

20

Number of purchase orders per annum

150

50

Number of deliveries to retailers per annum

75

15

The price for raw materials remained constant throughout the year at 4 per kg. Similarly, the direct labour cost for the whole workforce was 30 per hour. The annual overhead costs were as follows:

Cost PoolDriver

Machine set up costsNumber of Production Set Ups600,000

Machine running costsMachine Hours800,000

Ordering costsNumber of purchase Orders900,000

Delivery CostsNumber of Deliveries900,000

Total Overhead cost3,200,000

Required:

a)Calculate the full cost and profit per unit for products P1 and P2 under traditional absorption costing, using direct labour hours as the basis for apportionment.

b)Calculate the full cost and profit per unit foreachproduct using activity-based costing.