Jewel Products Ltd. is a producer of jewellery. The company uses a traditional costing system to allocate production overheads to products based on labour hours. The Managing Director tells you that it has been suggested to him that an activity based costing approach would give a better allocation of production overheads and has asked you to carry out some calculations. You have collected the following information on production overhead costs:

/ Production Set Up Costs 129,000

Cost of Ordering Materials 81,000

Cost of Handling Materials 35,000

Utility Costs 175,000

Details of 3 model products and actual cost information for the last period has been recorded as follows:

GEMB GEMC GEME

Units produced 1,000 2,000 1,000

No. of Requisitions 30 100 70

No. of Material Orders 20 30 40

No. of production runs 24 40 36

Machine hours per unit 1 1 2

Direct labour hours per unit (/20 per hour) 1 1.5 2

Direct Materials per unit /20 /30 /40

Requirement

(a) Prepare a schedule showing the total production cost and the unit production cost for each of the 3 products using:(i) Traditional Absorption Costing (ii) Activity Based Costing

(b) Comment on the relevance of both approaches.