Hamilton Ltd makes two styles of trophy, basic and deluxe, and operates at capacity. Hamilton does large custom orders. Hamilton budgets to produce 10 000 basic trophies and5 000 deluxe trophies. Production takes place in two production departments: Forming and Assembly. In the Forming Department, indirect production costs are accumulated in two cost pools, set-up and general overhead. In the Assembly Department, all indirect production costs are accumulated in one general overhead cost pool. The basic trophies are formed in batches of 200 but because of the more intricate detail of the deluxe trophies, these are formed in batches of 50.

The management accountant has asked you to compare cost allocations according to the different approaches. Budgeted cost information is given in the table opposite.

Hamilton budgeted information for the year ended 30 November 2019

Forming Department

Basic

Deluxe

Total

Direct materials

$60 000

$35 000

$95 000

Direct production labour

30 000

20 000

50 000

Overhead costs:

Set-up

48 000

General overhead

32 000

Assembly Department

Basic

Deluxe

Total

Direct materials

$ 5 000

$10 000

$15 000

Direct production labour

15 000

25 000

40 000

Overhead costs:

General overhead

40 000

Required

1.Calculate the budgeted unit cost of basic and deluxe trophies based on a single plant-wide overhead rate, if total overhead is allocated based on total direct costs. (Do not forget to include direct material and direct production labour cost in your unit cost calculation.)

2.Calculate the budgeted unit cost of basic and deluxe trophies based on departmental overhead rates, where Forming Department overhead costs are allocated based on direct production labour costs of the Forming Department and Assembly Department overhead costs are allocated based on total direct production labour costs of the Assembly Department.

3.Calculate the budgeted unit cost of basic and deluxe trophies where Hamilton allocates overhead costs in each department using activity-based costing, where set-up costs are allocated based on number of batches and general overhead costs for each department are allocated based on direct production labour costs of each department.

4.Explain briefly why plant-wide, department and activity-based costing systems show different costs for the basic and deluxe trophies. Recommend one of these systems and provide reasons for your answer.