AB company produces two products, A and B. The budgeted annual output is 200 units of...

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AB company produces two products, A and B. The budgeted annual output is 200 units of A product and 400 units of B product. The budgeted manufacturing costs for each product are as follows: Direct material cost/unit Direct labour cost/unit The budgeted production overheads Allocation base Activities Ordering of materials Material preparation Supervision Quality control Total A 1kg@£10 1.5 hours@£12 An analysis of the production process revealed that the overheads will be caused by four activities: ordering of materials (driven by order processing hours), material preparation (driven by material handling hours), supervision (driven by supervision hours), and quality control (driven by No. of checks). The following table shows the consumption of the four activities by products A and B: Cost Pool £1,050 £1,500 £1,950 £1,500 £6,000 B 1.5kg@£4 .5 hours@£12 £6,000 Total direct labour hours A 62.5 hours 60 hours 45 hours 320 checks B 137.5 hours 90 hours 45 hours 80 checks Total 200 hours 150 hours 90 hours 400 checks Requirements for question 2: 1- Calculate the full Absorption cost and the full Activity Based Cost for both A and B products. 2- Compare and contrast your findings in part (a). Explain what you understand by the term 'cross-subsidisation, and how it can impact AB company's financial performance. 3- ABC produces more accurate costing information but is not preferred by many businesses. Suggest reasons why this might be the case. AB company produces two products, A and B. The budgeted annual output is 200 units of A product and 400 units of B product. The budgeted manufacturing costs for each product are as follows: Direct material cost/unit Direct labour cost/unit The budgeted production overheads Allocation base Activities Ordering of materials Material preparation Supervision Quality control Total A 1kg@£10 1.5 hours@£12 An analysis of the production process revealed that the overheads will be caused by four activities: ordering of materials (driven by order processing hours), material preparation (driven by material handling hours), supervision (driven by supervision hours), and quality control (driven by No. of checks). The following table shows the consumption of the four activities by products A and B: Cost Pool £1,050 £1,500 £1,950 £1,500 £6,000 B 1.5kg@£4 .5 hours@£12 £6,000 Total direct labour hours A 62.5 hours 60 hours 45 hours 320 checks B 137.5 hours 90 hours 45 hours 80 checks Total 200 hours 150 hours 90 hours 400 checks Requirements for question 2: 1- Calculate the full Absorption cost and the full Activity Based Cost for both A and B products. 2- Compare and contrast your findings in part (a). Explain what you understand by the term 'cross-subsidisation, and how it can impact AB company's financial performance. 3- ABC produces more accurate costing information but is not preferred by many businesses. Suggest reasons why this might be the case.

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