Use Activity Based Budgeting not Absorption Costing

Prepared by: Bigeso Makenge (PGDA - TIA. EBA-UDOM) Tel: 0747 46 67 61 et Co Dreduces three products, A, B and call made from the same matonal. Until now, it has used absorption costing to allocate overheads to its products. The company is now considering an activity based system in the hope that it will improve profitability. Information for the three products for the last year is as follows A B Production and sales volumes (units) 15,000 12.000 18.000 Selling price per unit $7.50 $12 $13 Raw material usage (kg) per unit 2 3 4 Direct labour hours per unit 0-1 0.15 0-2 Machine hours per unit 0-5 0-7 0.9 Number of production runs per annum 16 12 B Number of purchase orders per annum 24 28 42 Number of deliveries to retailers per annum 48 30 62 The price for raw materials remained constant throughout the year at $1-20 per ke Simarly, the direct labour cost for the whole workforce was $14-80 per hour. The annual overhead costs were as follows: $ Machine set up costs 26,550 Machine running costs 66,400 Procurement costs 48.000 Delivery costs 54.320 Required a) Calculate the full cost per unit for products A, B and under traditional absorption costing using direct labour hours as the basis for apportionment