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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 Receiving materials Maintenance Total cost Cost drivers per product A B 24,000 Materials movements 20 30 50 Set-up labour 100,000 20,000 Machine set-ups Machine hours (per unit) 0.6 0.4 0.5 6 2 12 Material handling 110,000 Materials movements 20 30 50 Engineering 180,000 Work order percentage 25% 25% 50% Packing and shipping 50,000 Customer orders shipped 2 8 15 Machine depreciation 260,000 Machine hours (per unit) 0.6 0.4 0.5 Total 744,000 Other information related to the products is given below: A B Production and sales 14,000 units 6,000 units 4,000 units Selling price per unit 60 65 80 Raw materials cost per unit 14 16 20 Direct labour cost per unit 10 11 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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