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York Ltd is about to launch three new environmentally friendly products and the managing director needs to know whether changing the costing system makes any
York Ltd is about to launch three new environmentally friendly products and the managing director needs to know whether changing the costing system makes any difference for product-based decisions. The company's existing costing system allocates total overhead costs to individual products on the basis of machine hours. Estimated monthly product cost information for the new products is given in the table below. Overhead cost pool ? B ? Receiving materials Maintenance Set-up labour Material handling Engineering Packing and shipping Machine depreciation Total Total cost Cost drivers per product 24,000 Materials movements 100,000 Machine hours (per unit) 20,000 Machine set-ups 110,000 Materials movements 180,000 Work order percentage 50,000 Customer orders shipped 260,000 Machine hours (per unit) 744,000 20 30 50 0.6 0.4 0.5 6 2 12 20 30 50 25% 25% 50% 2 8 15 0.6 0.4 0.5 Other information related to the products is given below: ?. B Production and sales 14,000 units 6,000 units Selling price per unit 60 65 Raw materials cost per unit 14 16 Direct labour cost per unit 10 11 ? 4,000 units 80 20 13 Using the conventional absorption costing approach based on machine hours and showing all workings, calculate the unit and total costs and profit for each product. Using the activity-based costing approach and showing all workings, calculate the unit and total costs and profit for each product
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