Q2. Having attended a CIMA course on activity-based costing (ABC) you decide to experiment by applying the principle of ABC to the four products currently made and sold by your company. Details of the four products and relevant information are given on the next page for one period: Product A B C D Output in units 120 100 120 Costs per unit: (C) () () () Direct material 405030 60 Direct labour 28 21 14 Machine hours (per unit) The four products are similar and are usually produced in production runs of 20 units and sold in batches of 10 unites. $75 The production overhead is currently absorbed by using a machine hour rate, and the total of the production overhead for the period has been analysed as follows: Mar Machine department costs (rent, business rates, depreciation and supervision) Set-up costs Stores receiving Inspection/Quality control Materials handling and despatch 10,430107 5250 3,600 2,100 4,620 You have ascertained that the cost drivers' to be used are as listed below for the overhead costs shown: Cost Cost Driver Set up costs Number of production runs Stores receiving Requisitions raised Inspection/Quality control Number of production runs Materials handling and despatch Order executed The number of requisitions raised on the stores was 20 for each product and number of orders executed was 42, each order being for batch of 10 of a product. You are required a. To calculate the total costs for each product if all overhead costs are absorbed on a machine hour basis; b. To calculate the total costs for each product, using activity-based costing; c. To calculate and list the unit product costs from your figures in (a) and (b) above, to show the differences and to comment briefly on any conclusions which may be drawn which could have pricing and profit implications. (2+5+3 Marks)