QUESTION 2 [10 MARKS] Foamstar Ltd. makes three main products using the same production method and...

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QUESTION 2 [10 MARKS] Foamstar Ltd. makes three main products using the same production method and equipment for each. A conventional product costing system is used at present although an ABC technique is being considered. Details of the three products for a typical period are: Hours per Unit Material Volume per unit Labour Hours Machine Rs Units Hours Product P 0.50 1.50 Product Q 1.50 1.00 Product R 1.00 3.00 222 20 750 12 1250 25 7000 Direct labour costs Rs 6 per hour and production overheads are absorbed on a machine hour basis. The rate for the period is RS 28 per machine hour. Further analysis shows that the total of production overheads can be divided as follows: % Cost relating to set-ups 35 Cost relating to machine usage 20 Cost relating to materials handling 15 Cost relating to inspection 30 100 Total production overhead The following activity volumes are associated with the product line for the period as a whole. Total activities for the period. ********** 2 ********** Product P Product Q Product R Number of set- ups Number of movements of materials Number of inspection 150 IT I 115 480 670 120 180 670 1000 REQUIRED: A. Calculate the cost per unit for each product using traditional methods. B. Calculate the cost per unit for each product using ABC principles. C. Comment on the reasons for any differences in the costs in your answers to (A) and (B) and what will be its impact? [3 marks] [2 marks] [ 5 marks] QUESTION 2 [10 MARKS] Foamstar Ltd. makes three main products using the same production method and equipment for each. A conventional product costing system is used at present although an ABC technique is being considered. Details of the three products for a typical period are: Hours per Unit Material Volume per unit Labour Hours Machine Rs Units Hours Product P 0.50 1.50 Product Q 1.50 1.00 Product R 1.00 3.00 222 20 750 12 1250 25 7000 Direct labour costs Rs 6 per hour and production overheads are absorbed on a machine hour basis. The rate for the period is RS 28 per machine hour. Further analysis shows that the total of production overheads can be divided as follows: % Cost relating to set-ups 35 Cost relating to machine usage 20 Cost relating to materials handling 15 Cost relating to inspection 30 100 Total production overhead The following activity volumes are associated with the product line for the period as a whole. Total activities for the period. ********** 2 ********** Product P Product Q Product R Number of set- ups Number of movements of materials Number of inspection 150 IT I 115 480 670 120 180 670 1000 REQUIRED: A. Calculate the cost per unit for each product using traditional methods. B. Calculate the cost per unit for each product using ABC principles. C. Comment on the reasons for any differences in the costs in your answers to (A) and (B) and what will be its impact? [3 marks] [2 marks] [ 5 marks]