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Two SOT Company makes and sells two products, X and Y. Data for production and sales each month are as follows: Sales demand (units) Product
Two SOT Company makes and sells two products, X and Y. Data for production and sales each month are as follows: Sales demand (units) Product -X Product-Y 4,000 8,000 Direct Materials cost/unit ($) 20 10 Direct Labour hours/unit (hours) 0.1 0.2 Direct Labour cost/unit ($) 2 Production overheads are $500,000 each month An analysis of overhead costs suggests that there are four main activities that cause overhead expenditure. The usage of activities is as follows: Cost pool Product Total $ Cost Driver Total Product number Activity Overheads X Y $ Batch Set up 100,000 No of set up 20 10 10 Order handling Machining 200,000 No of Orders 40 120,000 Machine hrs 15,000 6,000 24 16 9,000 Quality Control 80,000 No of Checks 32 18 14 Total Overheads $500,000 Required: Calculate the full production costs for product X and Y Using 1) Traditional absorption costing (absorption production overhead on a direct labour hours basis (10 Marks) 2) Activity Based Costing for absorption of overhead costs- (15 Marks)
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