GROUP HOMEWORK 2: CHAPTER 5 - ABC QUESTIONS QUESTION 4: OMEGA LTD Omega Ltd makes coats in two ranges such as Basic and Deluxe. Information relating to each of these products is set out below: Basic Deluxe Selling price per unit 160 420 Material cost per unit 45 110 Labour time per unit 4 hour 10 hours Labour rate per hour 15 15 Annual sales volume 2,000 units 5,000 units The Director of Omega Ltd has produced the following analysis of total overheads per year and their relevant cost drivers: Type of overhead Cost driver Quality Inspections Number of quality inspections 120,000 Sales invoicing costs Number of invoices issued 24,000 All other overheads Machine hours 320,000 Total overhead costs 464,000 Breakdown Cost Drivers: Basic Deluxe Number of Quality Inspections each year 200 800 Number of sales invoices issues each year 200 1,000 Number of Machine Hours 3,840 8,960 Required: A) Calculate the total cost per unit and profit per unit for each product using: - the traditional full cost method of overhead absorption (based on labour hours) (2 marks) - the activity-based costing (ABC) method (3 marks). B) Comment on your findings and suggest an action plan accordingly (1 mark)