Hi there,

I have a question that I don't know how to work it out. If anyone can help it would be very much appreciated. Thank you very much!

KL Ltd. operates an activity-based costing system and has forecasted the following information for overhead activities next year.

Cost Pool	Total Costs	Cost driver	Number of drivers
Production set-ups	$105,000	Set-ups	300
Product testing	$300,000	Tests	1,500
Component supply and storage	$25,000	Component orders	500
Customer orders and delivery	$112,500	Customer orders	1,000

The companys general fixed overheads such as lighting and heating, which cannot be linked to any specific activity, are expected to be $900,000, and these overheads are absorbed on a direct labour hour basis. Total direct labour hours for next year are expected to be 300,000 hours.

KL Ltd. expects orders for its one of products, Product ZT3 next year to be in two slots: i) 100 orders of 60 units per order and, ii) 60 orders of 50 units per order. The company holds no stocks of product ZT3 and will need to produce the order requirements in production runs of 900 units per production run. KL Ltd.s practice is to place one order for components used by product ZT3 prior to each production run. Four test runs are undertaken during each production run to ensure that quality standards are maintained. The following additional cost and profit information relates to product ZT3.

Direct material cost: $1 per unit

Direct labour: 10 minutes per unit at $7.8 per hour

Profit mark up: 40% of unit cost

Please try to use the following tables if you can when replying so that the answers would also make sense to me. Thanks.

i) Calculate the activity-based cost/activity driver rate for each cost pool.

Cost Pool	Total Costs ($)	Number of drivers	Cost/Activity driver rate ($ per cost driver)
Production set-ups
Product testing
Component supply & storage
Customers orders & delivery

ii) Calculate the cost per unit and selling price per unit of Product ZT3.

Total production units of Product ZT3

Activity	Annual quantity of activity driver used by Product ZT3
Production set-up
Product testing
Component supply and storage
Customer order and delivery

Annual Activity Cost of Product ZT3

Activity	Cost/activity driver rate ($)	Annual quantity of activity driver used by Product ZT3	Annual Activity Cost ($)
Production set-up
Product testing
Component supply & storage
Customer order & delivery

Total General Fixed Overheads of Product ZT3

Overhead item for Product ZT3	Annual Overhead Cost for Product ZT3 ($)
Production set-ups
Product setting
Component supply and storage
Customer orders and delivery
Fixed overheads
Total annual overhead cost of Product ZT3

Cost item for Product ZT3	Cost of Product ZT3 Per Unit ($)
Direct material
Direct labour
Overheads
Total: Unit cost
Profit mark-up (40%)
Total: Unit selling price

iii) Discuss whether the use of cost drivers in a traditional accounting system differs from those in an activity-based costing system.