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Northem Ltd makes two products A and B. Information retating to each of these products is set out below. B Seling price per unit

Northem Ltd makes two products A and B. Information retating to each of these products is set out below. B Seling price per unit E100 E120 Material cost per unit 45 60 Labour time per unit 2 hours 2 hours Labour rate per hour Number of Units Produced each year 14 14 6.000 units 8,000 units Number of sales invaices issued each year Size of each production batch Bought-in parts per unit 100 500 300 200 Machine sef-ups per hatch Machine Hours total 7400 29.600 The Finance Director of Northem Ltd has recently produced the following analysis of overheads and their relevant cost drivers Cost Driver Number of boughten parts Cost (E) Cost Pool Bought-in parts handling costs 150,000 Materials handing costs Number of production batches 66,000 Number of sales imvoices Sales invoicing costs 18,000 iSsued Number of machine set- Machine set-up costs 28,000 ups Machine hours All other overheads 74.000 Totai overhead costs E336,000 Required: A) Calculate the total.cost per unit and profit : per unit for each product using - the traditional full cost method of overhead absorption (based on labour houts (2 marks) - the activity-based costing (ABC) method (5 marks) B) Comment on your findings and suggest an action plan accordingly (1 mark).

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Northern Ltd Workings for Absorption Calculation of OH absorption Rate Product A Product B Total Note Volume 600000 800000 A Direct Labor Hour Per unit 200 200 B Total Direct Labor Hours 1200000 16000... blur-text-image

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