Calculate the production overheads to be absorbed

Reference no: EM13920584

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.

Quantity produced (units)	L 5,000	M 7,000
Direct labour 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

Required

Calculate the production overheads to be absorbed by one unit of each of the products using the following costing methods.

(a) A traditional costing approach using a direct labour hour rate to absorb overheads

(b) An activity based costing approach, using suitable cost drivers to trace overheads to products

Reference no: EM13920584

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