Speedy Company has identified the following activities relating to indirect production costs:

ActivityActivity Costs

Machine Setup$180,0001,500 setup hours

Materials Handling$50,00012,500 pounds of materials

Electric Power$20,00020,000 kilowatt hours

Speedy Company has obtained the following data concerning two products:

Products

Speedy1Speedy2

Number of units produced4,00020,000

Direct labor hours per unit31

Number of setup hours420480

Orders executed5001,500

Kilowatt-hours1,0002,000

Required:

a.Calculate the overhead for each product using absorption costing based on labour hours absorption rate.(5 marks)

Machine Setup: $180,000/1,500 = $120 per set ups

Materials Handling: $50,000/12,500 =

Electric Power: $20,000/20,000 =

b.Compute the unit cost for both products using the ABC approach.(15 marks)