Question 82 Barber Ltd is a heritage Jacket Company. They make three statement jackets: Waxed Jacket, Quilted Jacket and Utility. Until now, it has used traditional absorption costing to allocate overheads to its products. The newly appointed management accountant has heard of the virtues of activity based costing system. She has proposed the new system to the board in the hope that it will improve profitability and sales decisions. Information for the three products for the last year is as follows: Waxed Quilted Utility Production and sales volumes (units) 18,000 12,000 15,00 Selling price per unit 125 100 95 Raw material cost per unit 25 20 18 Direct labour hours per unit 1 1.5 0.5 Machine hours per unit 1.5 2 3 Number of production runs per annum 16 12 8 Number of purchase orders per annum 24 28 42 Number of deliveries to retailers per 48 30 62 annum The direct labour cost for the whole workforce was 14-80 per hour. The annual overhead costs were as follows: Machine set up costs Machine running costs Procurement costs Delivery costs 25 The total overheads for the company for the year was 1,957,500 and is normally absorbed using direct labour hours. V3 2021 2021 Northem Consortium L Page 6 of 9 IDBMA001 Management Accounting (a) Calculate the profit per unit for each Jacket, Waxed, Quilted and Utility under [8] traditional absorption costing. (b) Calculate the profit per unit for each Jacket, Waxed, Quilted and Utility using [8] (c) activity based costing (ABC). Using your calculation from (a) and (b) above, explain how activity based [4] costing may help Barber improve the profitability of each product.