Tiskolo Ltd manufactures and sells products M, N, O and P. Information onproduction and sale of the products are given below:

Production overhead costs consist of the following: Delivery costs 1,200,000 Machine set up costs785,500 Procurement costs 680,000 Total 2,665,500

a.Calculate the total unit cost of each product using traditional absorption costingsystem with machine hours as the allocation basis for production overhead costs.[4 marks]

b.Calculate the total unit cost of each product using activity-based costing system.[4 marks]

c.Comment on the differences in your results when traditional absorption costing andactivity-based costing are used.

M N O 21.00 8 19.50 8 30.00 11 40.00 12 1 2 3.5 4.5 50,000 35,000 44,000 20,000 Direct material cost per unit Direct labour cost per unit Machine hours required to make 10 units Annual production (units) Number of set ups per annum Number of purchase orders per annum Number of deliveries Selling price per unit 22 24 18 15 52 110 118 70 45 120 65 50 50 70 160 90