Required: a) Calculate the cost and profit for each unit of both components using the traditional absorption costing method [6 marks] Calculate the cost and profit for each product using an Activity Based Costing approach b) c) [12 marks] Discuss the differences in your calculations from i) and ii) above and recommend whether the company should adopt the ABC approach [7 marks] [Total 25 marks] Page 5 of 10 MN30170 FireFly Ltd manufactures two electronic components in their Somerset factory. The business has traditionally used an absorption costing system to allocate overheads though are now considering changing this to an activity-based costing (ABC) approach. The following information has been provided by the Finance Director: Component A Component B Total Raw Materials costs Total Direct Labour costs Labour time per component Number of machine set-ups Number of purchase orders Number of inspections Number of sales invoices processed Number of components manufactured 80,000 120,000 0.75 hours 20 400 70,000 150,000 1.5 hours 30 100 10 15 700 16,000 300 10,000 FireFly adds a 50% mark-up to the total cost when setting the product's selling price. The traditional absorption costing system was based on labour hours with overheads being absorbed at 5 per labour hour. An accountant in the company has researched the overheads and has identified they comprise of the following: Machinery Set-up costs Material Ordering costs Inspection costs Selling expenses 30% 40% 10% 20% Hint: You need to calculate the total overheads from the information given