White house Production Ltd makes two products, Gel and Zin. Product Gel is made in batches of 40,000 units and product Zin is made in batches of 4,000 units. Each batch
has the following set-up and quantity inspection costs:
• Set-up costs £1,000
Quality inspection costs £500
Each month, White house produces 500,000 units of Gel and 250,000 units of Zin.
At present the company charges overheads (to output/products) on the basis of labour
hours which are 250 hours per week for Gel and 250 hours for Zin.
REQUIRED
(a) Calculate the overheads charged to Gel and Zin each month on the basis of
labour hours

(b) Calculate the overheads charged to Gel and Zin each month, using ACTIVITY
BASED COSTING (ABC) with the cost drivers of set-up and quality
inspections

(c) Discuss the difference between the results of (a) and (b) and explain with
reasons which costing method do you prefer

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