The directors of XYZ Plc. have some concern over the costing methods currently being used withinone of their businesses, Trimake Ltd. Trimake Ltd. currently makes three main products, usingbroadly the same production methods and equipment for each. A conventional product costingsystem is used at present, although the directors are considering switching to an activity-basedcosting(ABC) system.Details ofthe three productsfora typicalperiodare:

HoursperUnit

	HoursperUnit
	LabourHours	MachineUnit	MaterialsperUnit	VolumeUnits
ProductX	0.5	1.5	20	750
ProductY	1.5	1	12	1250
ProductZ	1	3	25	7000

Direct Labour costs 6 per hour and production overheads are absorbed on a machine hour basis.Theratefor theperiodis28 permachinehour.

Youare required:

1. tocalculatethecostperunitforeachproduct usingconventionalmethods.

Furtheranalysisshowsthatthetotalofproductionoverheadscanbedividedasfollows:

	%
CostsrelatingtoSet-Ups	35
CostsrelatingtoMachinery	20
CostsrelatingtoMaterialsHandling	15
CostsrelatingtoInspection	30
TotalProductionOverhead	100%

Thefollowingactivityvolumesare associatedwiththe productline forthe periodasawhole.

Totalactivitiesfortheperiod:

	Numberofset-ups	Number ofmovementof materials	NumberofInspections
ProductX	75	12	150
ProductY	115	21	180
ProductZ	480	87	670
Totals	670	120	1000

Youare required:

1. to calculatethecostperunitforeachproduct usingABCprinciples
2. to commentonthe reasons forany differencesin thecostsinyour answersto(a)and (b)