Question

In: Accounting

Delicioso Ltd manufactures two types of Microwave Ovens – Conventional and Integrated. The company is currently...

Delicioso Ltd manufactures two types of Microwave Ovens – Conventional and Integrated. The company is currently using a traditional costing system with machine hours as the cost driver. The company is considering whether to use the activity-based costing (ABC) method to allocate overhead costs to products. Budgeted overhead costs of the upcoming accounting period follow:

Activity

Total budgeted activity cost

Activity driver

Machining

$300,000

Number of machine hours

Setup

$100,000

Number of production runs

Inspection

$105,000

Number of inspection hours

The activity level for the year is: Conventional Integrated

Annual production in units 50,000 100,000

Direct material cost $150,000 $300,000

Direct labour costs $50,000 $100,000
Direct labour hours 2,500 5,000

Machine hours 25,000 50,000

Number of production runs 50 50

Inspection hours 1,000 500

1. Calculate the unit cost of each product if the conventional costing approach is used

2. determine the unit of producing each product if activity based costing is used .

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