NLS Ltd provides commercial laundry services to local hospital and nursing homes, two prisons and a variety of other organisations. The company currently absorbs overheads on the basis of a departmental rate for each of its two operational cost centres, Transport and Laundry, but is considering adoption of activity-based costing next year. Because of the bulk nature of the company's work, NLS Ltd's cost unit is 100 individual items of laundry, this being the basis upon which unit costs are calculated.

Estimated data for next year: existing absorption method

Total number of laundry costs units to be processed	48,000
Total transport kilometres for collection/delivery	100,000
Total overhead	£400,000
Allocation and apportionment of total overhead	70% to Laundry 30% to Transport

Additional data resulting from ABC study

Main activities	Cost Driver	Cost pool (% of total overhead)
Collection and delivery of laundry	100,000 transport km	15
Loading/unloading of vans	8,000 transport runs	10
Laundry	300,000kg dry weight of items cleaned	30
Drying	400,000kg wet weight of items cleaned	25
Steam pressing	48,000 costs units	20

Data for two sample contracts

	Hillsmere Hospital	Goreton Prison
No. of cost units of 100 items	9,000	2,000
No. of transport runs	1,200	300
Transport km	6,000	8,000
Average dry weight per cost unit of 100 items	4kg	2kg
Average wet weight per cost unit of 100 items	5.3kg	3.3kg

Required

(a) Using NLS Ltd's existing method, calculate the appropriate absorption rate per unit for each of the Transport and Laundry costs centres.

(b) Calculate the absorption rate applicable to each activity assuming an activity-based costing system was in operation.

(c) Calculate the overhead absorbed by each of the Hillsmere and Goreton contracts if:

(i) the absorption rates in (a) are applied; and

(ii) the absorption rates in (b) are applied