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Kasih Ltd produces and sells two types of belts: metallic belt and elastic pearl belt. It has the following data for the two products: Production
Kasih Ltd produces and sells two types of belts: metallic belt and elastic pearl belt. It has the following data for the two products: Production volume Selling price per unit Direct material cost per unit Labour hour per unit (cost per hour is 2.50) Metallic belt Elastic pearl belt 10,000 units 5,000 units 10 15 4 8 2 hours 4 hours It has identified the following activities, costs, cost drivers and volume of cost drivers consumed by each product: Activity Budgeted Cost driver Metallic Elastic cost belt pearl belt Machine set-ups 60,000 Number of set-ups 75 125 Machine running 100,000 Machine hours 20,000 30,000 Inspection 50,000 Inspection hours 1,800 2,200 Packing 40,000 Number of packing orders 1,500 2,500 REQUIRED: (a) (b) Calculate the production cost per unit for each product using the absorption costing method, absorbing overheads on the basis of labour hours. Calculate the production cost per unit for each product using activity-based costing principles. [14] Comment on the reasons for the differences in the costs in your answers to (a) and (b) above. [4] (c)
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