Jewel Products Ltd. is a producer of jewellery.? The company uses a traditional costing system to allocate production overheads to products based on labour hours.? The Managing Director tells you that it has been suggested to him that an activity based costing approach would give a better allocation of production overheads and has asked you to carry out some calculations.? You have collected the following information on production overhead costs:???????????? ?/? Production Set Up Costs????? 129,000 Cost of Ordering Materials??????? 81,000 Cost of Handling Materials??????? 35,000 Utility Costs??????? 175,000 ?

Details of 3 model products and actual cost information for the last period has been recorded as follows: ?

????? GEMB? GEMC? GEME Units produced??? 1,000? 2,000? 1,000 ?

No. of Requisitions?????? 30??? 100???? 70 No. of Material Orders????? 20???? 30??????? 40 No. of production runs????? 24???? 40???? 36 Machine hours per unit?????? 1?????? 1???? 2 Direct labour hours per unit (?/?20 per hour) 1???? 1.5???? 2 Direct Materials per unit?? ?/?20?? ?/?30?? ?/?40 ?

Requirement ?

(a) Prepare a schedule showing the total production cost and the unit production cost for each of the 3 products using: (i) Traditional Absorption Costing? (ii) Activity Based Costing??????????????????????????????????????????????????? 15 Marks (b) Comment on the relevance of both approaches.???????????????????????????????????????????????????????????????? 5 Marks