Falcon Specialty Coffee Company is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. Company currently has 12 different coffees that it offers to gourmet shops in one-pound bags. The major cost is raw materials; however, there is a substantial amount of manufacturing overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labour. Some of the coffees are very popular and sell in large volumes(X) while a few of the newer blends have very low volumes(Y).company prices its coffee at full product cost, including allocated overhead. If prices for certain coffees are significantly higher than market, adjustments are made. The company competes primarily on the quality of its products, but customers are price conscious as well.

Falcon Specialty Coffee Company is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. Company currently has 12 different coffees that it offers to gourmet shops in one-pound bags. The major cost is raw materials; however, there is a substantial amount of manufacturing overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labour. Some of the coffees are very popular and sell in large volumes(X) while a few of the newer blends have very low volumes(Y).company prices its coffee at full product cost, including allocated overhead. If prices for certain coffees are significantly higher than market, adjustments are made. The company competes primarily on the quality of its products, but customers are price conscious as well.

Particulars	Product X	Product Y	Total for all Products
Units Produced Per Annum	50,000	1000	500,000
Material Cost Per Unit (Rs)	1	1
Direct Labour Per Unit	15 Minutes	15 Minutes
Machine Time Per Unit	1hour	1hour
Cost drivers:
No Of Setup Per Annum	24	2	500
No Of Purchase Orders For Materials	36	6	2800
No Of Times Material Handled	200	15	12000
Direct Labor Cost Per Hour (Rs.)			5
Overhead Costs:
Setup			280,000
Purchasing			145,000
Material Handling			130,000
Machines			660,000

Total machine hours are 600,000.

Required: Find out the per unit production cost of product X and product Y:

1. Using conventional product costing machine hours overhead absorption rate.
2. Using activity based costing.
3. Compare the result of two methods and comments.
4. Why is thought a traditional and volume-based costing systems tend to distort product cost?