Mercury Ltd produces two products with details below:

	Glopp	Gash
Production (units)	10,000	5,000
Batch size	100	20
Set ups per batch	3	1
Special parts per unit	1	4
Purchases per year	200	300

Activity	Cost pool	Cost Driver
Set ups	27,500	Number of set ups per batch
Special parts handling	30,000	Number of special parts per unit
Purchase order	5,000	Number of orders per year

1. How are direct costs different to indirect costs? Give examples.
2. Calculate the cost driver rates for each activity.
3. How much overhead would be attributed to a unit of Glopp?
4. Compare the usage of Traditional Absorption costing with Activity Based costing.
5. Discuss how budgeting could be applied to ABC costing.