Question Two

ABC Ltd produces a large number of products including A and B. A is a complex product of which 1,000 are made and sold in each period. B is a simple product of which 25,000 are made and sold in each period. A requires one direct labour hour to produce and B requires 0.6 direct labour hours to produce.

ABC Ltd employees produce salaried support. Staff is engaged in three activities. Six employees engaged in receiving 25,000 consignments of components per period, three employees engaged in receiving 10,000 consignments of raw materials for per period and three employees engaged and materials for 5,000 production runs per period.

Product A requires, 200 component consignments, 50 raw materials consignments and ten production runs per period. Product B requires 100 component consignments, eight raw material consignments and five product runs per period.

Required:

Identify appropriate cost drivers and calculate an activity based costing system.

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