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Marginal Costing/Absorption Costing/Activity Based Costing ET Ltd manufactures two products E and T. Weekly production is 500 units of each product. Each unit of production
Marginal Costing/Absorption Costing/Activity Based Costing ET Ltd manufactures two products E and T. Weekly production is 500 units of each product. Each unit of production - whether E or T- requires one direct labour hour. Products are made in batches-before a batch can be made the production machinery must be set up, checked for accuracy and test run. Each batch produced has to be inspected to ensure that it is of the required standard, with any rejects being identified. Currently the company uses absorption costing. Details of each products are: Product E Made in batches of 500 units > Selling price per unit 100 Direct material per unit 30 Direct labour per unit 10 Product T Made in batches of 100units >Selling price per unit 80 > Direct materials per unit 20 >Direct labour per unit 10 Fixed production costs per week are: > Set up costs of machinery 12,000 > Inspection costs of production 6,000 These costs are currently attributable to output of the basis of labour hours. The Chief Financial Officer of ET Ltd has asked you to help to show how marginal costing. absorption costing and activity-based costing will deal differently with the costs? Required Show the cost per unit and the profit statement under Marginal Costing, Absorption Costing and Activity Based Costing2
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