Illustration 1 – ABC
A company manufactures two products, X and Y. The company uses absorption costing and fixed production costs and absorbed into production costs on a direct labour hour basis.
The budgeted information for the next financial year is as follows:
Product XProduct YTotal
Production and sales2,000 units5,000 units
Direct labour hours per unit32
Budgeted direct labour hours6,00010,00016,000