Hero Ltd manufactures 4 products using the same plant and process.

Management is considering switching to the activity-based costing approach for overhead absorption from the traditional one currently used. See information below.

	A	B	C	D
Direct materials per unit	$11	$6	$21	$19
Labour hours per unit	3	1.5	2	5
Machine hours	1.5	4	3	2
Production and sales (units)	3100	4100	6100	15100
Selling price per unit	$65	$55	$75	$105

Note:

Labour = $16 per hour

Total production overhead = $374500

Total overhead is comprised of:

• Machine oriented activity $147719
• Set up $162308
• Cost of ordering materials $13679
• Cost of handling materials $33675
• Admin costs for handling spare parts $17119

Current traditional costing excerpt:

	A	B	C	D
Overhead cost / unit	$5.50	$28	$19	$10
Full cost / unit	$45.50	$40.50	$54	$90

Period production activities:

	No. set-ups	No. material orders	No. times material handled	No. spare parts
A	5	6	21	6
B	6	12	21	11
C	2	9	6	2
D	4	7	4	6

1. Showing full workings calculate the unit profit for each of the products based on the traditional method of overhead absorption.
2. Showing full workings calculate full unit cost and profit for each of the products using activity-based costing.
3. Explain the calculations above and differences