Almari Magick has a single production process for which the following costs have been estimated for the period ending 31 December 2019:

	RM
Material receipt and inspection cost	15,600
Power cost	19,500
Material handling cost	13,650

Three products; X, Y and Z are produced by workers who perform a number of operations on material blanks using hand-held electrically powered drills. The workers have a wage rate of RM4 per hour.

The following budgeted information has been obtained for the period ending 31 December 2019:

	Product X	Product Y	Product Z
Production units	2,000	1,500	800
Batches of material	10	5	16
Data per product unit:
Direct material (square metres)	4	6	3
Direct material (RM)	5	3	6
Direct labour (minutes)	24	40	60
Number of power drill operations	6	3	2

Overhead costs for material receipt and inspection, process power and material handling are presently each absorbed by product units using rates per direct labour hour.

An Activity-Based Costing (ABC) investigation has revealed that the cost drivers for the overhead costs are as follows:

Material receipt and inspection: number of batches of material

Process power: number of power drill operations

Material handling: quantity of material (square metres) handled

You are required to:

1. Calculate the budgeted product cost per unit for each of products X, Y and Z for the period ending 31 December 2019 detailing the unit costs for each cost element:

1. using the existing method for the absorption of overhead costs and

(10 marks)

2. using an approach which recognizes the cost drivers revealed in the ABC investigation (10 marks)

2. Explain the relevance of cost drivers in activity-based costing. Make use of figures from the summary statement prepared in (a) to illustrate your answer.

(5 marks)