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Question - Bobble Music Ltd. is considering changing its costing approach away from a Traditional absorption costing one based an expected units required to an Activity-Based Costing [ABC] one, It has overheads of $156,000 which are related to taking material deliveries. The delivery information about each product is given as follows:
Product
Disc
Tape
Vinyl
Total units required (#units)
1,000
2,000
3,000
Delivery size {# units)
200
400
Total labour costs are 536,000 for 45,000 hours. Each unit of each product takes the same number of direct hours.
Assuming that the company uses the number of deliveries as its cost driver, what is the increase or decrease in unit costs for Vinyl arising from the change from the traditional absorption costing approach to ABC?
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