Reference no: EM132527628

Jewel Products Ltd. is a producer of jewellery. The company uses a traditional costing system to allocate production overheads to products based on labour hours. The Managing Director tells you that it has been suggested to him that an activity based costing approach would give a better allocation of production overheads and has asked you to carry out some calculations.

You have collected the following information on production overhead costs:

€/£ Production Set Up Costs 129,000

Cost of Ordering Materials 81,000

Cost of Handling Materials 35,000

Utility Costs 175,000

Details of 3 model products and actual cost information for the last period has been recorded as follows:

                                                             GEMB              GEMC                    GEME

Units produced                             1,000               2,000             1,000

No. of Requisitions                          30                    100             70

No. of Material Orders                     20                      30                 40

No. of production runs                     24                     40                36

Machine hours per unit                        1                   1                 2

Direct labour hours per unit (€/£20 per hour) 1           1.5                   2

Direct Materials per unit                        €/£20       €/£30            €/£40

Requirement

Question (a) Do a schedule showing the total production cost and the unit production cost for each of the 3 products using Traditional Absorption Costing, Activity Based Costing

Question (b) Comment on the relevance of both approaches.