Question:This question hasn't been solved yetAsk an expert WhiteBrownPurpleProduction Volume (Units)30,00024,00036,000Raw Materials Per Unit (kg)1.52.43.0Direct Materials Costs Per Unit ($)3.65.767.2Direct Labour hours Per Unit (Hrs)0.20.30.4Direct Labour Cost Per Unit ($)5.928.8811.84Other Operational DataMachine Hours Per Unit (Hrs)0.50.70.9Production Runs322416Number of Purchases485684Number of Deliveries9660124Selling Price Per Unit ($)18.53540The price for raw materials per kilogramme is $2.40 and the direct labour cost per hour is $29.60.The annual overhead costs along with the relevant cost drivers have been analysed below:Overhead Cost CentreCost Driver$Machine Set Up Costs ($)Production Runs74,000Machine Running Costs ($)Machine Hours120,000Purchasing Costs ($)Number of Purchases94,000Delivery Costs ($)Number of Deliveries112,000Total 400,000 Required:Calculate the full cost per unit for products White, Brown and Purple under traditional absorption costing, using direct labour hours as the basis for absorption.Discuss the potential cost management implications of switching to an ABC system.Discuss the effects on pricing and product profitability from switching from traditional absorption costing to an ABC system.Explain the steps and possible pitfalls to avoid when introducing an ABC system into a business such as the one above.

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Description: Question:This question hasn't been solved yetAsk an expert WhiteBrownPurpleProduction Volume (Units)30,00024,00036,000Raw Materials Per Unit (kg)1.52.43.0Direct Materials Costs Per Unit ($)3.65.767.2Direct Labour hours Per Unit (Hrs)0.20.30.4Direct

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	White	Brown	Purple
Production Volume (Units)	30,000	24,000	36,000
Raw Materials Per Unit (kg)	1.5	2.4	3.0
Direct Materials Costs Per Unit ($)	3.6	5.76	7.2
Direct Labour hours Per Unit (Hrs)	0.2	0.3	0.4
Direct Labour Cost Per Unit ($)	5.92	8.88	11.84
Other Operational Data
Machine Hours Per Unit (Hrs)	0.5	0.7	0.9
Production Runs	32	24	16
Number of Purchases	48	56	84
Number of Deliveries	96	60	124
Selling Price Per Unit ($)	18.5	35	40

The price for raw materials per kilogramme is $2.40 and the direct labour cost per hour is $29.60.

The annual overhead costs along with the relevant cost drivers have been analysed below:

Overhead Cost Centre	Cost Driver	$
Machine Set Up Costs ($)	Production Runs	74,000
Machine Running Costs ($)	Machine Hours	120,000
Purchasing Costs ($)	Number of Purchases	94,000
Delivery Costs ($)	Number of Deliveries	112,000
Total		400,000

Required:

Calculate the full cost per unit for products White, Brown and Purple under traditional absorption costing, using direct labour hours as the basis for absorption.

Discuss the potential cost management implications of switching to an ABC system.

Discuss the effects on pricing and product profitability from switching from traditional absorption costing to an ABC system.

Explain the steps and possible pitfalls to avoid when introducing an ABC system into a business such as the one above.

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