• Duff Co manufactures three products, X, Y and Z. Demand for products X and Y. Each product uses the same materials and the same type of direct labour but in different quantities. For many years, the company has been using full absorption costing and absorbing overheads on the basis of direct labour hours. Budgeted production and sales volumes for X, Y and Z for the next year are 20,000 units, 16,000 units and 22,000 units respectively. The budgeted direct costs of the three products are shown below: Product X Y Z per unit per unit per unit Direct materials £25 £ 28 £22 Direct labour (£12 per hour) £30 £36 £24 Labour hours 2·5 3 2 In the next year, Duff Co also expects to incur indirect production costs of £1,377,400, which are analysed as follows: Cost pools £ Cost drivers Machine set up costs 280,000 Number of batches Material ordering costs 316,000 Number of purchase orders Machine running costs 420,000 Number of machine hours General facility costs 361,400 Number of machine hours –––––––––– 1,377,400 –––––––––– The following additional data relate to each product: Product X Y Z Total Number of batches (i.e. set ups) 40 20 55 115 No of purchase orders 160 100 220 480 Total Machine hours 30,000 20,000 30,800 80,800 Duff Co wants to boost sales revenue in order to increase profits. The finance director has suggested using activity-based costing (ABC) instead of full absorption costing, since this will alter the cost of the products and may therefore enable a different price to be charged. Required: (1) Calculate the budgeted full production cost per unit of each product using Duff Co’s current method of absorption costing. All workings should be to two decimal places. (2) Calculate the budgeted full production cost per unit of each product using activity based costing. All workings should be to two decimal places.