The proposed new product is not expected to cause any overhead cost driver activity

other than that associated with drilling or pressing.

Required:

$($a$)$ Calculate the unit cost of the proposed new product using a traditional costing

approach.

$(6$ marks$)$

$($b$)$ Calculate the activity based costing cost driver rates per drilling and pressing

operation.

$($c$)$ Calculate the unit cost of the proposed new product using activity based costing

principles.

$(4$ marks$)$

$($Total: $12$ marks$)$Question $2$

Bridges Co wishes to estimate the unit cost of a proposed new product. The following

information has been collected.

Estimated direct costs $($all variable$)$:

Direct material $,4kg$ per unit at $$5\mathrm{.}00$ per $kg$

Direct labour $,0\mathrm{.}5$ hour per unit at $$10\mathrm{.}00$ per hour

Other direct expenses $,$$$2\mathrm{.}00$ per unit

A fixed overhead absorption rate based on budgeted direct labour hours is used to cost

products.

Fixed overheads are budgeted at $$60,000$ for the next period with a budgeted activity

level of $6,000$ direct labour hours.

Bridges Co is considering using activity based costing and the cost accountant has

collected the following information on activities and costs associated with the proposed

new product.