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Pump_it_up Ltd produces two models of water pumps, the household model and the commercial model. Currently, the company uses a conventional costing system i.e., labour

Pump_it_up Ltd produces two models of water pumps, the household model and the commercial model. Currently, the company uses a conventional costing system i.e., labour hours, to estimate its manufacturing overhead. The estimated production volumes are 2,000 units of the household model and 500 units of the commercial model in the forecasting period. Management suspects that the reliance solely on labour hours may not provide reliable costing, and therefore the CFO experiments with an alternative costing system, namely, Activity Based Costing (ABC) system. The following information is provided.

Cost driver consumption
Activity OVERHEAD COST COST DRIVER Household Commercial
Setup 30,000 Number of setups 20 40
Machining 150,000 Machine hours 4,000 6,000
Assembly 60,000 Labour hours 2,000 1,000
Packing 30,000 Packing orders 1,000 2,000

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