Geo Ltd manufactures three different products: Alpha, Beta and Ceta. The selling prices are determined based on a pricing policy of 'cost plus a mark-up of 10%'.

The company incurred total manufacturing overheads of $748,800, which are currently allocated on a plant-wide basis using direct labour hours as the absorption base.

The financial controller is planning the implementation of an Activity Based Costing (ABC) system and has recently identified various cost drivers and assigned costs to related activity cost pools as follows:

Activity, Cost Driver, Cost Pool

Material Inspections Material Quantity $320,000

Machine Maintenance Machine Hours $316,800

Production Scheduling Production Set-ups $112,000

The following operating statistics and information concerning the three products are available:

Products Alpha Beta Ceta

Production (Units) 5,000 8,000 7,500

Direct Materials Used $35,000 $31,000 $41,000

Direct Labour Wages $29,000 $33,000 $31,000

Machine Hours 24,000 8,000 16,000

Production Set-ups 105 305 215

Raw Materials (Quantity) 400,000 240,000 640,000

Labour Hours 32,000 16,000 48,000

Required:

(a)Using the traditional approach of allocating overheads to products, calculate the product cost per unit for each of the three products.

(b)Using the principles of Activity Based Costing, calculate the product cost per unit for each of the three products.