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Example Topic 5 - ABC A clothing manufacturer, Brief Encounter Ltd . , manufactures 2 products - Rose & Rouge, using the same equipment and

Example Topic 5- ABC
A clothing manufacturer, Brief Encounter Ltd., manufactures 2 products - Rose & Rouge, using the
same equipment and similar processes.
Activities have been examined to identify the relevant cost drivers as: machine hours, set-ups and
customer orders.
August budgeted data has been provided relating to the cost drivers, in addition to material, labour
and overhead costs and quantities produced.
August budget ABC data
Budgeted number of units manufactured
Direct material cost per unit
Direct labour hours per unit
Direct labour cost per hour
Machine hours per unit
Set-ups during the month
Customer orders handled in the month
Rose
20,000
5
0.5
8
2
30
40
Rouge
10,000
20
0.5
8
4
70
160
Overhead costs for the month:
relating to machine activity
relating to set-ups of production runs
relating to order handling
300,000
50,000
70,000
For the traditional absoprtion costing approach, assume overhead costs are absorbed on the basis of
direct labour hours.
Required:
Using the above data, prepare the full production cost of each unit of the Rose & Rouge products
using both the traditional absorption costing approach and using the ABC costing approach.
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