QUESTION THREE

GumTree Moulds Limited manufactures three products XYZ in two departments that involve Machining and Assembly. The following information relating to production and cost data for the period under review has been given to you as the new management accountant.

Table 1

	X	Y	Z	Total
Production Units	5,000	25,000	15,000	45,000
Machine Hours	2,000	2,500	1,500	6,000
Direct Material Cost /Unit(K)	55	40	30
Labour Cost/Hour(K)	15	15	15
Total Overhead Cost(K)				1,800,000

Table 2

Activity	Cost Driver	X	Y	Z	Total
Machining:
Set-Up	Number of setups	120	80	50	250
Machining	Machine Hours	2,000	2,500	1,500	6,000
Assembly:
Assembly	Labour Hours	25,000	15,000	5,000	45,000
Inspection	Number of Inspections	50	25	25	100

Additional Information:

Management will be holding a meeting to consider the two methods of costing products that the company should adopt between Traditional Absorption Costing and Activity based Costing (ABC)Each unit produced of the three products requires 30 minutes of Direct labour.For the purpose of using the ABC method the overhead cost in table 1 will be apportioned as follows:

Activity Overhead Cost

Setup 17%

Machining 50%

Assembly 25%

Inspection 8%

Total 100%

Required:

i. Determine the unit cost for each product using labour hours as absorption basis.

[5 marks]

ii. Calculate the cost driver rate for each activity cost pool. [5 marks]

iii. Using ABC method, calculates the units cost for each product. [15marks]

(25 Marks)