Reference no: EM132552959
A company manufactures two products, L and M, using the same equipment and similar processes. An extract of the production data for these products in one period is shown below .
Description L M
Quantity produced (units) 5,000 7,000
Direct labor hours per unit 1 2
Machine hours per unit 3 1
Set-ups in the period 10 40
Orders handled in the period 15 60
Overhead costs
Relating to machine activity 220 000
Relating to production run set-ups 20 000
Relating to handling of orders 45 000
285 000
Question 1: Calculate the production overheads to be absorbed by one unit of each of the products using the following costing methods.
(i) A traditional costing approach, using a direct labor hour rate to absorb overheads.
(ii) An activity based costing approach, using suitable cost drivers to trace overheads to products.
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