Question 3: Activity-Based Costing

Peter Ltd produces two products, Small and Large. The company currently absorbs overheads on the basis of units produced, but they have read about a method based on activities undertaken and have asked you to help them investigate the method.

The output is Small15,000 and Large 12,000.

The company has provided the following information;

Overhead activityAnnual costsCost driver Amount of activity

SmallLarge

Production129,800Machine hours 1260 1100

Quality inspection58,080No. of production runs 8030

Material purchased71,820Purchase orders 30 12

Deliveries to retailers 18,080Shipments 2012

Produce a statement showing the overhead split using Activity Based Costing. Show the amount per unit produced.