Following are the expenses incurred on manufacturing:

Power Normal

$ $

Direct Material per Unit 25 15

Direct Labor Cost 70 30

Direct Labour Time 2 hours 8 hours

Units 12000 40000

Estimated overheads for the time period are:

1. Consider that overhead is allocated on the basis of direct labor hours, calculate cost price per unit using pre-determined overhead application rate.

2. Now using the activity base costing, calculate cost price per unit.

3. Compare the pricing from two different methods – POHR and ABC and suggest which method do you think give more precise answer. What strategies could have gone wrong by adopting POHR?

4. How supervisors would make an assessment of cost driver to use for ABC costing?