Question 2 [100 marks]
In Jasmine Ltd’s production cost centre, two units are produced:Unit Aand Unit B, the total overhead cost being €1000. This is madeup of two costs:
Machine set-up costs of €800; and
Inspection costs of €200.
Overhead is absorbed on the basis of direct labour hours. Thetotal direct labour hours (DLH) amount to 200 DLH.
Unit A requires 150 DLH; and
Unit B 50 DLH.
The machinery for Unit A only needs to be set-up once whereasUnit Brequires nine set-ups. Unit A and Unit B both require twoinspections each.
Required
a) Calculate the overhead recovery charge that should be made toeach product, based on:
Absorption costing method based on Direct Labour Hours.
[20 marks]
The ABC method based on machine set-up costs and inspectioncosts.
[50 marks]
b) Show the comparison of each method and write a short noteexplaining
why the difference occurs.
[30 marks]
