Herbert Love Corporation produces two products: A and B. The annual production and sales level of Product A is 32,000 units. The annual production and sales level of the premium Product B is 18,000. Currently, the company uses traditional costing and the total overheads of ₹525,00,000 are apportioned on the basis on Direct Labour Hours. 

The following information is also available: 

                                         Product A                B 

Sales price per unit        ₹3500               ₹3800 

Direct material per unit ₹1500               ₹1800 

Direct labor per unit       ₹400                  ₹500 

Direct Labour Hours        8000                 2000 

The sales of Product B are increasing but alarmingly the overall profits of the company are declining. The management accounting of the company advises to use activity-based costing. Calculate profit under each product line.

Answer rating: 100% (QA)

Step 1 Calculate the overhead allocation rates for each activity Overhead costs 52500000 a Direct Labour Hours Total Direct Labour Hours for both prod... View the full answer