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Problem - Duff Co wants to boost sales revenue in order to increase profits but its capacity to do this is limited because of its use of cost plus pricing and the application of the standard mark-up. The finance director has suggested using activity based costing (ABC) instead of full absorption costing, since this will alter the cost of the products and may therefore enable a different price to be charged.
Required -
(a) Calculate the budgeted full production cost per unit of each product using Duff Co's current method of absorption costing. (Include all workings).
(b) Calculate the budgeted full production cost per unit of each product using activity based costing. (Include all workings).
(c) Explain the impact on the selling prices and the sales volumes of each product which a change to activity based costing would be expected to bring about.
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