Having attended a Management Accounting course on Activity-based Costing (ABC), you decide to experiment by applying the principles of ABC to the three products currently made and sold by your company. Details of the three products and relevant information are given below for one period:

A B C

Machine hour 480 300 260

Number of production run 6 5 4

Number receipt 12 10 8

Number of deliveries 25 21 14

Number of productions 14 16 10

Direct materials (RM) 1000 500 300

Direct labour (RM) 490 210 140

The production overhead is currently absorbed using a machine hour rate and the production overhead

costs are as follows:

Overhead activity Amount (RM)

Machine 10,430

Set-up 5,250

Receiving 3,600

Packaging 2,100

Engineering 4,600

Required:

(a) calculate the overhead absorption rate (OAR) by using the traditional costing approach. (1mark)

(b) compute the total manufacturing cost by using Activity-based costing. (20 marks)