Question 2 Kabak Ltd produces three products, X, Y and Z, all made from the same material. Until now, it has used traditional absorption costing to allocate overheads to its products. Relevant information for the three products and production costs for last year are provided below. Production and sales volume in the year (units) Selling price per unit Materials per unit (kg) Labour time per unit (hours) X 5,000 80 2 0.25 Y 14,000 70 3 0.35 z 12,000 90 4 0.45 Additional information on Kabak costs for last year can be found in the table. Raw material cost Labour cost Annual production overheads 2.40 per kg 16.80 per hour 1,805,150 The company is now considering an activity-based costing system in the hope that it will improve profitability. Further information for the three products for the last year was as follows. x Y Z Number of units produced per batch 50 200 100 Number of set-ups per batch 3 1 2 Number of purchase orders per batch 4 2 Total number of product inspections 200 140 40 4 Kabak has also broken down its annual production overheads into the following cost pools. Cost pool Machine set-up costs 732,000 Labour related costs 84,150 Purchase order costs 612,000 Product inspection costs 377,000 Total production overheads 1,805,150 You are Alexander Henderson, a Management Accountant at Kabak, and you have just had a meeting with your manager, Lin Wong, the Finance Director (FD), who would like your assistance in evaluating whether it will be beneficial for Kabak to adopt an activity-based costing approach in future. CONTINUED During your meeting with the FD, she asked you to address the following questions and communicate your responses to her in an email. Calculate the full cost per unit for each product last year using activity-based costing. Comment on your findings, and compare with the costs calculated in part (a). (19 marks)