Traditional Costing versus ABC Costing Method. A company manufactures two products, L and M, using the same equipment and similar processes. An extract from the production data for these products in one period is shown below. Product L 0.5 kilo 5,000 1hr Product M 0.5 kilo 7,000 2hrs 1hr 40 60 Material per unit @ $10/kilo Quantity produced (units) Direct labour hours per unit @ $15/hr Machine hours per unit Set-ups in the period Orders handled in the period Overhead costs Relating to machine activity Relating to production run set-ups Relating to handling of orders 3hrs 10 15 $ 220,000 20,000 45.000 285,000 Required: (a) Calculate the production overhead to be absorbed by each of the products, using an traditional based costing approach using direct labour hours as cost drivers to trace overheads to products. (b) Calculate the production overhead to be absorbed by each of the products, using an activity based costing approach with suitable cost drivers to trace overheads to products. (c) Compare and discuss the cost differences (O/H) from part (a) and (b). What are the implications on future pricing decisions (based on 20% mark-up) if the company continue to use traditional method to apportion O/H? Identify the cause(s) why O/H applied to Product L and Product M is significantly different between traditional method and ABC method