Reference no: EM133142943

Question - STER plc manufacturers product A and B. The following information is available form the company:

Position	Product A	Product B
Units produced	6,000	22,000
Selling price	430	220
Direct materials and labour per unit	200	80
Direct Labour hours	25,000	75,000
Direct labour hours per unit	5	3,75

The company has a total budgeted overhead of £2 milion. The following details are also available about overheads:

Position	Budgeted cost (£)
Engineering	130,000
Set-ups	300.000
Machine running	1,500,000
Packing	75,000
Total	2,000,000

Additional data:

Cost Driver	Product A	Product B
Engineering hours	5,000	7,500
Number of set ups	200	100
Machine hours	50,000	100,000
Number of packing orders	5,000	10,000

Required - You are required to allocate overheads using both traditional and ABC costing system. Prepare short overhead report. Includ in your solution following issues:

1. Revenue calculation.

2. Calculation of The activity rate for each activity cost pool.

3. Computation of the the total activity costs for A and B.

4. Preparation of the profitability report by using traditional and ABC approach.

5. Compare and discuss the results. Provide potentail recomendation.

6. Please list Activity-based costing advantages.