II- Mayes plc has a single production centre and has provided the following budgeted information for the next period.

Product A Product B Product C Total

Production and sales units 40,000 25,000 10,000 75,000

Direct material cost per unit $25 $20 $18 $1,680,000

Direct labour hours per unit 3 4 2 240,000

Machine hours per unit 2 4 3 210,000

Number of production runs 5 10 25 40

Number of component receipts 15 25 120 160

Number of production orders 15 10 25 50

Direct labour is paid $8 per hour.

Overhead costs in the period are expected to be as follows:

Set-up $140,000

Machine 900,000

Goods inwards 280,000

Packing 200,000

Engineering 180,000

$1,700,000

1. What are the unit costs of each product using: (a) the traditional approach based on labour hours? And (b) the ABC method? Assume that activity and cost driver are as follows:

Activity Cost driver

Set-up Number of production runs

Machine Machine hours

Goods inwards Number of receipts

Packing Number of production orders

Engineering Number of production orders

2. Compute the gross profit of each product using absorption costing and ABC, if selling price per unit of each product are $95, $120 and $70, respectively.

Solution:

a/ Compute the unit cost of each product using absorption costing