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D 900 600 Question 4 Hotel Furniture Ltd currently produce four products for their customers with the relevant information given below: Product line B Output (units) 500 1,200 Machine hours (per unit) 16 20 22 10 Costs per unit Direct material 150 E220 E180 90 Direct labour 100 150 200 E180 Selling Price 650 850 700 650 Total production overheads for the period have been analysed as follows: Production overheads Indirect material 50,000 Indirect labour 300,000 Rent 250,000 Servicing Costs 75,000 Depreciation 65,000 Production overheads are currently absorbed by using a plant-wide rate per machine hour. a) Calculate the cost per unit for each product if all overhead costs are absorbed on a machine hour basis (show your workings as full as possible). (10 marks) b) Critically compare the traditional absorption costing approach with activity-based costing. (8 marks) c) Why are labour hours a more common method adopted by most businesses for absorption costing? (8 marks) d) Based upon your understanding of limiting factor, which products would you produce if the machines were limited to 30,200 machine hours per year. (7 marks)