Q1. Triple Limited makes three types of gold watch the Diva (D), the Classic (C) and the Poser (P). A traditional product costing system is used at present; although an activity based costing (ABC) system is being considered. Details of the three products for a typical period are: Hours per unit Labour hours Product D Product C 1 Machine hours 1 Product P 3 Material Cost per unit ($) 20 Production Units 750 12 1,250 25 7,000 Direct labour costs $6 per hour and production overheads are absorbed on a machine hour basis. The overhead absorption rate for the period is $28 per machine hour. Required: (a) Calculate the cost per unit for each product using traditional methods, absorbing overheads on the basis of machine hours. Total production overheads are $654,500 and further analysis shows that the total production overheads can be divided as follows: Costs relating to set-ups Costs relating to machinery % 35 20 Costs relating to materials handling 15 30 100 Product D 75 Product C 115 Product P 480 670 Costs relating to inspection Total production overhead The following total activity volumes are associated with each product line for the period as a whole: Number of Set ups Number of movements of materials 12 21 87 120 Number of inspections 150 180 670 1,000 Required: (a) Calculate activity based recovery rates (4 marks) (b) Calculate the cost per unit for each product using ABC principles (work to two decimal places). (c) Discuss why absorption costing gives better result as compared with traditional absorption costing in today's manufacturing environment. (d) What will be impact on pricing and profitability if company switches to absorption costing? (4 marks)