Horn Products Ltd manufactures two types of lotion girls and boys. Both lotions are produced using the same equipment and similar processes. The following budgeted data has been obtained for the year ended 31 December 2019.

Budgeted production overheads for the year have been analysed as follows:

The budgeted wage rate is 40 per hour.

The companys present system is to absorb overheads by product units using rates per labour hour.

However, the company is considering implementing a system of activity- based costing. An activity-based investigation revealed that the cost drivers for the overhead costs are as follows:

1.Calculate the unit costs for each type of lotion using:

a. The traditional costing method. b. The proposed activity-based costing approach.

2.Discuss your results in (a) and (b) above.

Product girls Boys Production quantity 50000 500 Number of purchase orders 800 400 Number of set-ups 300 200 girls Resources required per unit boys Direct material () 50 125 Direct labour (hours) 20 20 Machine time (hours) 10 10 Volume related overheads 550 000 Purchases related overheads 600 000 Set-up related overheads 105 0000 Overhead cost Cost driver Volume related overheads Machine hours Purchases related overheads Number of purchase orders Set-up related overheads Number of set-ups