Stuart & Lou, a manufacturer of leather products, primarily makes three products. Details of the direct costs and labour hours per unit of each product together with the production volumes for the next year are as follows:

		Wallets	Casual Bags	Brief Cases
Direct material		$25	$20	$35
Direct labour		$20	$30	$30
Labour hours		2 hours	3 hours	3 hours
Production volumes		11,750	3,500	2,000

Total Production overheads for the next year are $756, 000.

Required:

a)

1. Calculate the total number of direct labour hours required for next year.

(3 marks)

2. Calculate an overhead absorption rate using direct labour hours as the absorption base.

(2 marks)

3. Using the absorption rate calculated in (ii), calculate the unit cost of each product.

(3 marks)

Further analysis suggests that the total production overheads of $756,000 relate to the following activities:

Activity
Set up costs	$222,000
Machinery costs	$161,000
Quality inspections	$100,200
Material ordering	$108,800
Labour related costs	$164,000

Relevant information for each product is as follows:

	Wallets	Casual Bags	Brief Cases
Number of set ups	120	80	100
Machine hours	22,150	7,700	10,400
Number of quality inspections	240	120	141
Number of material orders	47	33	48
Labour hours	See data given in a) above

Required:

b)

1. For each activity, calculate an activity cost driver rate.

(5 marks)

2. Calculate the unit cost of each product using Activity Based Costing.

(8 marks)

c) Briefly comment on the differences between Activity Based Costing and Absorption Costing.

(4 marks)